Erik Weijers, a year ago

Is a spot Bitcoin ETF coming?

For years, U.S. investors and crypto advocates have waited for a Bitcoin ETF. When the SEC first authorized one in October 2021, it turned out to be a huge nothing burger. It turned out to be a futures ETF. Since last week we have signs that an ETF could be coming that is directly linked to the spot (market) price of Bitcoin. Such a spot ETF would be good for the Bitcoin market and price.

A spot Bitcoin ETF (Exchange Traded Fund) would give large groups of (institutional) investors immediate exposure to Bitcoin at the current market price. Without having to buy Bitcoin themselves, which for many institutions does not fit into their traditional investment practices.

The advantage of a spot ETF over a futures ETF is that the former accurately tracks the price of Bitcoin. Whereas investing in a futures ETF comes with a loss margin for investors. This is because the managers of futures-based funds must incur monthly costs to replace expiring futures contracts with new ones. Investing in such a futures ETF leads to a monthly loss of over 2% compared to simply buying Bitcoin, or a spot ETF. An inferior product, in other words.

A turnaround at the SEC?

The signal picked up by market experts is the following. On April 7, 2022, the SEC (Securities and Exchange Commission) approved another futures-based Bitcoin ETF (the fourth). But this time, it did so under a different registration criterion than the previous futures ETFs, namely the so-called '33 Act. Under exactly that regulatory framework, a proposal for a spot ETF was also recently filed by Grayscale. This would eliminate a key argument that the SEC has used to date to deny spot ETFs - namely that this framework would not provide sufficient protection for investors. The well-known gold price ETF (GLD) is also filed under the '33 Act.

Already since 2013: the call for a spot ETF

Already since 2013, more than ten reputable funds have filed applications with the US SEC to have a spot ETF launched. It would make investing in Bitcoin much more accessible. To the despair of all the filers, it has not yet come to pass, unlike in Canada and Australia, for example.

Read more in this Twitter thread by Michael Sonnenshein, CEO of the aforementioned Grayscale. Grayscale would like to see their own unnecessarily complicated and expensive Grayscale Bitcoin Trust (GBTC) converted into a spot ETF. Grayscale is mobilizing their customers and recently even threatened the SEC with legal action.

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