What Is the Bitcoin Spot ETF and Why Does It Matter?
Several Bitcoin Futures ETFs exist, but The U.S. Securities and Exchange Commission (aka, the SEC) is taking its time to approve the first Bitcoin Spot ETF, with fears about the intersection between crypto and mainstream finance.
This is because ETFs are a gold-standard instrument for novice investors to get into the stock market, and a Bitcoin ETF is seen by many as a way of legitimating crypto within traditional financial markets, and sanctifying it for the masses.
Since their inception in 1993, ETFs have become the dominant investment vehicle for retail in the stock market, and $10.2 trillion dollars of assets are managed by ETFs, with the largest, the SPDR S&P500 ETF alone having a market cap of $360 billion.
For those who believe regulation and TradFi adoption are the key to crypto’s continuing success, a true Bitcoin spot ETF is a major landmark — a seal of approval from TradFi that crypto as an asset class is here to stay.
What is an ETF?
An ETF is an exchange-traded fund. They are a basket of securities that can be brought through a broker on a stock exchange.
They are regulated, retail-focused, and a way to access the stock market for the uninitiated. Market ETFs typically offer exposure to highly-diversified indexes (such as the S&P500) of stocks and are generally seen as the first step for a novice investor in the world of traditional finance. There are also Bond ETFs, Commodity ETFs, and Industry ETFs, to name a few more.
With them, investors can participate in the stock market at low cost with zero knowledge or experience, with their assets maintained for them. For example, Style ETFs allow investors to invest in a range of eco-friendly companies. Rather than owning the stock directly, investors just own a portion of the fund.
That portion is naturally exchangeable on the stock market too, and ETFs are easy to buy and sell. However, for active traders, they‘re generally not as useful — as they are relatively illiquid. ETFs are for buy-and-hold investors who want lower risk and steady accumulation in line with stock market performance.
What is the Bitcoin ETF?
There is no one bitcoin ETF. Several bitcoin ETFs are on the market, but they don’t represent only bitcoin. Rather, they index a variety of blockchain and blockchain-adjacent firms, while also having bitcoin futures activity when the market is profitable.
The U.S. SEC has already approved several Bitcoin futures ETFs, as futures ETFs have lighter regulation. A futures ETF is not quite the same as ‘the’ bitcoin ETF that is seen as the watermark. Greyscale and Bitwise, two firms lobbying, already have Bitcoin futures ETFs.
When it comes to a spot ETF, which would represent Bitcoin alone, the way a gold ETF represents gold, The SEC has so far said concerns about market manipulation and the inability for an ETF issuer to have a secure arrangement with a market-maker are issues.
A Bitcoin Spot ETF Means Adoption Begins
A spot Bitcoin ETF would represent a major step in Bitcoin — and by dint, other crypto — being seen as a mainstream asset class. Greyscale’s head of ETFs at the Coindesk Consensus said that “now it’s clearly a question of when it’s going to happen.”
The presence of a mainstream spot ETF for Bitcoin will truly open the doors to retail investors, hedge funds, and everyone in between, have a stake in Bitcoin, and elevate it to an asset class with the respectability, at least in TradFi, of gold. It would be a clean, regulatory window for any major fund or firm to be involved in crypto. That’s why it’s important.
Onomy Protocol’s mission is to be the bridge between traditional finance and Web3. We want to onboard institutional funds to participate in DeFi and the Forex market, while making worldwide payments easy for everyone — no matter how big or small. We welcome a spot Bitcoin ETF as a herald of what we already know, that the world’s finances are moving on chain, and Onomy will play a central role in crossing the chasm.
About Onomy
Onomy Protocol is a layer-1 Cosmos chain powering a multi-chain & intuitive DEX that combines AMM liquidity pools with an order book UI facilitating market, limit, and stop orders, alongside FX markets via its stablecoin minting system, and multi-protocol asset management through the multi-chain Onomy Access wallet.
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