The spot Bitcoin ETF will be pivotal for institutional adoption of crypto
Is this finally the year that crypto gains mainstream approval? It heavily depends on the Bitcoin ETF.
Windows of opportunity to approve the 13 active spot Bitcoin ETF applications are coming and going, with all eyes focused on the SEC. It’s fair to say that both crypto and TradFi investors are eagerly watching to see what action the regulatory agency takes.
Many believe that approval of a spot Bitcoin ETF will be the inflection point for crypto and a significant milestone step toward mass adoption, with some going as far to say that these
approvals could add up to $1 Trillion to crypto’s market cap.
The excitement around this new asset class is understandable. Many large players, such as
Fidelity and BlackRock, have spent a lot of time developing the operational framework for a spot Bitcoin ETF, and it has the potential to change who is able to access crypto assets. But it’s important to take a step back and take a thorough view of what the true impact of the spot Bitcoin ETF will be on the crypto industry and wider financial landscape.
Democratising access to Bitcoin
Spot Bitcoin ETFs have the potential to open investing in digital assets up to a much wider
audience. An ETF will enable asset managers to take even a small position on Bitcoin - this will be a game changer over the long term. More immediately, when you have an ETF supported
and sponsored by major asset managers you're providing credibility to the asset class. For
investors, it’s also reassuring to have access to the ETF through established financial players.
Having Bitcoin in an ETF form, as opposed to its physical form, is something institutions may be more comfortable and familiar with, meaning it will be easier for them to adopt. The industry is now on the cusp of turning Bitcoin into an investment opportunity that institutions can get on board with, which could be a pivotal step in the journey towards greater institutional adoption, and maturation of the crypto industry.
The benefits aren’t just limited to institutions. Spot Bitcoin ETFs will be offered through trusted management platforms, meaning investors won’t need to manage their own assets and can instead rely on a trusted party to do so.
There are other regulated and compliant ways to invest in Bitcoin
However, the Bitcoin ETF does come with tradeoffs. By nature, the asset class lacks the
decentralised and non-custodial nature of physical Bitcoin. This means that a fundamental
feature of the currency, giving individuals complete control and ownership over the asset, is lost. Taking away the decentralised and non-custodial qualities of Bitcoin leaves investors vulnerable to traditional finance agency risks.
The time it will take for the spot Bitcoin ETF to become available should also be noted. While yes, the approval will green light new opportunities for a number of sovereign, pension funds, IRAs, 401ks and other institutions, it could take months for ETFs to be listed. This means that the approval of a spot Bitcoin ETF won’t have the big bang impact on the industry that some are anticipating.
Moreover, alternative platforms are already available immediately for investors to take positions in Bitcoin in a regulated and compliant way.
The convergence of traditional finance and digital assets will continue
When weighing up the pros and cons of the spot Bitcoin ETF, it’s very clear that it will fill a pivotal role in the financial space.
Its introduction will give current and potential investors more options than are currently present - which is important for the overall strength of the digital asset market. The spot Bitcoin ETF also enables investors to allocate to digital assets through trusted financial institutions, offering greater confidence and reassurance in their investments.
They can also choose to go down the route of physical Bitcoin, which gives investors immediate access to greater control and ownership, without the cost of management fees. Presently many regulated platforms are available that offer immediate access to physical bitcoin in bankruptcy-remote and insured environments. This increase in choice will lead to increased investor exposure, which is ultimately good for the digital asset industry.
The introduction of a spot Bitcoin ETF is a significant sign of things to come. Bitcoin, and by extension blockchain technology, were created to transform the financial industry and the
convergence of traditional finance and crypto shown through the creation of this new vehicle is a step towards realising that goal. As we continue to grasp the capabilities of blockchain, we’ll see a continued convergence of finance and crypto, allowing the benefits of both to shine.