Is this fabled Bitcoin ETF really going to be the "to the moon" moment that everyone in the ecosystem seems to be expecting? From personal experience, I can't think of anyone who wants to buy Bitcoin but hasn't been able to by now. It takes a few clicks on Coinbase/Robinhood or a similar exchange. Plenty of 401k/IRA managers (including Fidelity) offer it as an option. So what exactly changes once this ETF is live?
Bitcoin futures ETF's are already allowed - several exist and they track the BTC:USD rate relatively accurately. I'm not sure that a spot price ETF is really a huge breakthrough in terms of actual mechanics.
But approval is an opportunity to create hype and buzz around cryptocurrency.
Bitcoin futures are correlated but nowhere near a 1:1 proxy for spot markets. Crypto markets are known for very steep "contango" in the curve, and it's not unusual for the price of the 30 days futures to be more than $1000 away from the current Bitcoin price.
The issue isn't just additional volatility and tracking error, but the fact that the con tango creates a "roll yield" which affects the long-term returns of the strategy. To keep constant maturity exposure, the futures ETF has to constantly "roll" its positions into further dated contracts. In particular because the market tends to be in contango it means further dated futures tend to be higher priced than near dated futures. So usually the futures ETFs in their daily rebalancing are selling cheap near dated contracts for more expensive longer dated contracts. Hence the roll yield tends to be negative. Then add all the transaction costs from daily rebalancing. It should be clear why the futures strategy has inferior returns to simply holding spot.
Spot Bitcoin ETFs truly are a game changer compared to futures ETFSs.
> several exist and they track the BTC:USD rate relatively accurately
They are terrible assets with severe discount/premium swings reaching the high 40%s [0]. The ratio's only tightening now that a potential arbitrage opportunity is on the table.
GBTC is it's own weird separate thing, with a whole bunch of red flags. It's not yet an ETF. They don't even distribute the fund prospectus online, it's only available by email request.
It’s very important because if you don’t like the standard finance system and want to use an alternate one that isn’t corrupted by greed and incumbents, the best way to do that is… to buy it through the current financial system?
It gives credibility to the thing that explicitly does not want credibility. Or at least didn’t. Maybe it does now. I don’t know.
ETF's are so pervasive because they're so easy. VIX futures can be held, but people still buy VIXY and similar products. You can buy literal physical gold, but people still buy GLD et al.
And it hardly matters that wrapping it in an ETF makes it potentially really weird (like how GLD and other gold ETFs are only barely nominally like holding gold, and VIX ETFs often hold cash-settled futures based on the value of a formula that is based on another formula that takes in various parameters of the prices and durations of options which themselves are priced based on the price movements of various equity securities and .........). The depths of weirdness have already been pretty well-explored by existing weird ETFs. A bitcoin ETF wouldn't even be particularly notable levels of weird, imo.
So, just the fact that it makes it really easy is typically a big boon to people getting exposure to whatever financial force the ETF holds.
It's the "it makes it easier" part that I am debating. Yes buying into a gold ETF is obviously easier because going out and buying physical gold takes more effort. But for a bitcoin ETF you are trading two clicks on one site vs two clicks on another. And in the ETF case you don't actually get to own any Bitcoin. So where's the advantage?
I believe the argument is that it makes it easier for institutions like fund managers and businesses because they don't need to be concerned with custodianship.
That may have made sense 8 years ago, but the problem has long since been solved. Coinbase can act as a custodian for your Bitcoin. Fidelity has its own service for it, as does every other fund/brokerage/bank of its scale. You can buy it as part of your 401k.
On the contrary, it makes a significant difference. Futures have to roll over monthly and there's costs associated with that. Depending on the slope of the futures curve, the costs can be high (10+%). Holding spot bitcoin solves this problem and makes the fund more palatable to advisors and institutions.
401k accounts at Fidelity don’t generally allow one to hold Bitcoin even if they do have a self directed account. With a Bitcoin ETF people don’t need permission from their employer anymore. I’m also skeptical of their current plans and whether they actually allow people to hold Bitcoin. Employees I’ve spoken to in the department have told me the most Id be able to get in a retirement account is “exposure” to the broader crypto market which is undesirable to those who are just interested in Bitcoin.
Why wait? It's been 15 years of Bitcoin outperforming every other asset. Nobody has found an exploit making the tech worthless, nor have competitors stolen its market share. Bitcoin is here to stay and the only ones shouting at it are too stubborn to ever admit it has value.
I live in Europe. I don't have a fund manager and I have invested in stocks on a low cost trading platform. Now I also have an account on Coinbase, which is an entirely different beast- different security, different responsibilities. It feels much more like owning physical goods than investing.
There is a friction that would undoubtedly be solved by bitcoin ETFs. There's hundred of millions of causal investors who prefer to simply treat btc as any other stock and don't want to bother with actual ownership of the asset in any form and don't want to have to deal with anything different from normal stocks.
And lowering friction increases usage.
If you’re in EU, why do you need to wait on a US ETF? There is already a spot Bitcoin ETF on Euronext, BCOIN. (Not rhetorical! I am curious about the mechanics of this)
And, further, the US ETFs, should they be authorised, almost certainly won't be available to EU retail traders, as the companies involved are highly unlikely to makes them UCITS compliant (for the likes of Blackrock and Vanguard, the general approach is to make separate non-UCITS and UCITS funds for the US and EU respectively).
I'd expect some upward pressure on price because the ETFs will own bitcoin.
But to your larger, exaggerated ("everyone"), question: It'll make it easier to include bitcoin as a part of larger trades when it can be bought and sold and used as collateral like a regular stock. It'll be another tool used by professional traders. I don't think it'll be a world-changing event, and like you said, it's probably not going to increase aggregate demand as trading desks will shift out of complicated ownership structures to use the ETF instead.
The main thing I think is that if there is an ETF then this could be the green light for big MMs to open/re-open crypto MM activities, on its own term and as part of being APs for the ETFs. Wintermute/Portofino/etc are good but if the big guys come in liquidity/order book depth will probably get way better.
This is likely going to be for certain large institutional funds where there are many restrictions on what can be bought. Buying an ETF is often the easiest path for them. Also, retail folks that like the idea of the SEC signing off on it (I think this is a silly reason but I can empathize with why that might be comforting for some).
