The Potential Impact of a U.S. Bitcoin Spot ETF
Bitcoin investors are eagerly awaiting regulatory approval for the first U.S. spot bitcoin exchange-traded fund (ETF), which experts believe could have significant implications for cryptocurrency investors.
Last week, the price of bitcoin reached an 18-month high, climbing to $37,970, after investment management firm BlackRock took steps toward launching an ether ETF. Although bitcoin’s price has more than doubled since the beginning of 2023, it is still below its peak in November 2021.
Several asset management firms, including BlackRock, WisdomTree, and Valkyrie, are currently awaiting approval from the Securities and Exchange Commission (SEC) to issue a spot bitcoin ETF. Experts predict that the first approval could come in early 2024.
The Appeal of a Bitcoin Spot ETF
According to Bryan Armour, Director of Passive Strategies Research for North America at Morningstar, a spot bitcoin ETF would be the ideal product for ETF investors. He believes that existing options have various flaws.
Currently, U.S. investors can purchase bitcoin futures ETFs, which own bitcoin futures contracts. In contrast, a spot bitcoin ETF would directly invest in the digital asset itself.
Potential Approval and Market Impact
If the SEC approves a spot bitcoin ETF, Armour expects a “batch approval” where multiple ETF listings would be approved on the same day. He believes that the SEC will review spot ETF applications holistically due to similar approaches taken by most issuers.
Armour also notes positive signs that the SEC is taking recent filings more seriously and expresses greater optimism about the possibility of a bitcoin ETF than ever before.
While some crypto investors anticipate a rally in bitcoin’s price upon approval, Armour suggests that it is also possible for the price to dip as investors sell to collect profits.
Considering Risk and Volatility
While the approval of a spot bitcoin ETF would make the asset class more accessible, experts caution investors to consider their risk tolerance and goals before investing.
Certified Financial Planner Ben Smith advises that a spot bitcoin ETF may be suitable for more aggressive investors with a higher risk appetite and diversified portfolios.
However, experts generally recommend limiting cryptocurrency exposure to a small percentage of one’s allocation (e.g., 1% to 5%) to minimize downside risk. Bitcoin remains an extremely volatile and speculative asset.
Hot Take: The Potential Impact of a U.S. Bitcoin Spot ETF
The approval of a U.S. spot bitcoin ETF could be a game-changer for cryptocurrency investors. It would provide a regulated and direct way for investors to gain exposure to bitcoin, without the flaws associated with existing options like bitcoin futures ETFs. While there is anticipation of a potential rally in bitcoin’s price upon approval, it’s important to remember that volatility remains a significant factor in the crypto market. Investors should carefully consider their risk tolerance and goals before diving into this new investment opportunity.
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