Last week was a good week for Bitcoin despite the fact that the market came crashing down over the weekend. Fidelity International is one of the biggest investment companies in the world and started a new Bitcoin ETF in Canada. While there are already several exchange-traded products and fonds available on the international market, this particular ETF was notable for good reason.
In this article, we are going to answer the question of what a spot Bitcoin ETF really is and why some analysts are really excited about it.
What is the difference between those ETFs?
When the first Bitcoin ETF started in the US a few months ago everybody got excited since it was considered a historical event. Over the last four years, the Security and Exchange Commission turned down all applications for an ETF in the United States.
But the brand-new product was not what everybody had expected, since it was a so-called futures ETF. Such an ETF is very different, because it doesn’t buy or hold Bitcoin in its portfolio but is rather representing the value of Bitcoin. It allows investors to hold BTC in their portfolio, but it doesn’t increase the amount of money that is flowing into the spot market.
And this is what we are potentially looking at with Fidelity’s ETF. It is a real spot ETF with “physical” replication and therefore more money is flowing into the markets. Since the SEC is still not fond of the idea of a Bitcoin spot ETF on the US market, the new product simply launched in Canada.
Why is a spot ETF important?
Many analysts believe that spot ETFs could open a flood gate of cash that could burst into the market. The positive side effect of such an inflow would be the increasing demand for BTC. Since a physical replicating ETF needs to hold the BTC it would need to buy them from the market. With increasing demand, the price could possibly take off.
This is of course a very optimistic view and it would take a lot of cash to move the price in the right direction. Another thing that comes into play is the increasing education about Bitcoin. An ETF doesn’t allow investors to hold BTC for themselves and use it for transactions. The “digital gold” is so attractive because the network cannot be controlled by a single entity. By investing in Bitcoin ETFs investors lose the most precious advantage.