Eleven spot Bitcoin ETFs, including BlackRock’s iShares Bitcoin Trust, Grayscale Bitcoin Trust, and ARK 21Shares Bitcoin ETF, among others, commenced trading on Thursday morning, initiating a fierce competition for market share. Bitcoin ETFs saw $4.6 Billion in trading volume on the first day of launching.
The rumours of a Bitcoin ETF getting approval in the US market have been circulating within the Bitcoin community for many years, with the first Bitcoin ETF filed famously by the Winklevoss twins in 2013.
Although similar financial instruments have already been launched in Europe, Canada, and Brazil, the anticipation in the US has been significant.
The excitement surrounding a Bitcoin ETF, particularly a spot ETF launching in the US market, stems from two primary reasons. First, a spot ETF serves as an ideal financial instrument for significant investors and funds to gain exposure to Bitcoin in a secure and regulated manner.
Secondly, a spot ETF involves the purchase of physical bitcoins, ensuring full backing, unlike Bitcoin futures, which rely on price speculation. This implies that as more people invest in the Bitcoin ETF, there is a decrease in circulating bitcoins, leading to higher demand for existing bitcoins and, consequently, an increase in price.
While there is enthusiasm about Bitcoin ETFs, there is also a sceptical view that they could pose a threat to Bitcoin, a concern I will address later in the blog. But first, let’s understand what an ETF is and who typically invests in it.
What is an ETF and who buys them?
An ETF stands for Exchange Traded Fund, its a financial investment vehicle that is traded in the public like a stock, but tracks the performance of an underlying asset or a basket of assets.
They first launched in 1993 and soon became a popular way for retail investors to invest in a basket of assets at once. The most popular ETF is the S&P 500, which lets you invest in the 500 largest companies in America at once.
ETFs have become incredibly popular among a diverse array of investors, from beginners who are just wading into the investment pool, to seasoned investors looking for diversified exposure in the market.
The market cap of the largest ETF is more than $400 Billion. The top three ETF issuers have a staggering total of $20 Trillion in assets under management.
What is the impact of the Bitcoin ETF?
The good
A new instrument to invest into Bitcoin (especially for institutional investors)
An ETF would be a new vehicle to invest in Bitcoin, especially for companies and institutional investors who want to hold Bitcoin on their balance sheet. There was no straightforward way for these investors to get exposure to Bitcoin before the ETF was launched; now, buying and holding Bitcoin would be no different from owning a stock, reducing a huge barrier for these investors.
Legitimising Bitcoin among the masses
It is important to distinguish between Bitcoin and all the other “Cryptocurrencies”. There have been many scams and shady projects in the Crypto space in general, which also affects Bitcoin as they are seen in the same light, especially by newbies who are not aware of the nuances between Bitcoin and other cryptos.
Now that the SEC has declared Bitcoin specifically not to be a security and the Bitcoin ETF has been launched, the sentiment of legitimacy for Bitcoin among traditional investors seems inevitable.
Price
The more easier ways to invest in Bitcoin, the higher the inflow of capital and hence an increase in price as the supply of Bitcoin is fixed. While Bitcoin is up more than 70% in the last 3 months, within 24 hours of the ETF going live, BTC has dropped 2%, a classic example of buy the rumour, sell the news.
The bad
Potential of excessive control over Bitcoin
The largest issuer of ETFs is Blackrock with over $9 Trillion in assets under management. That’s higher than the GDP of every country in the world except the US and China.
Blackrock has gained such influence over multiple industries like energy, food, pharma, etc that some call it “The fourth branch of government”.
Even presidential candidates including Vivek Ramaswamy took a stab at the top 3 ETF issuers Blackrock, Vanguard and State street (whose largest shareholder is Blackrock) calling them “the most powerful cartel in human history”.
There are concerns about these huge companies having excessive control and say over the direction of their portfolio companies, so naturally this concern also translates to Bitcoin and the narrative around it.
However, Bitcoin was built and designed to prevent any single individual company or government to have control over it.
Not true to the ethos of Bitcoin and sovereignty
The whole point why Bitcoin was launched amidst the collapse of banks was to introduce a new concept of money which is outside of the control of any government and promotes self sovereignty be design.
A Bitcoin ETF is the antithesis of the ethos of Bitcoin, as you do not possess or have access to your Bitcoin.
There are two kinds of Bitcoin holders:
First is those who buy and hold Bitcoin on exchanges mainly for financial gains and speculation
Second is those who hold Bitcoin in a self-custodial wallet (like a hardware wallet or otherwise) as they value the financial sovereignty aspect of self-custody
An ETF would be a natural fit for the first set of users as it is a much more safer and straightforward way compared to crypto exchanges (especially after the FTX fiasco)
Bringin: A tool to Buy and Sell Bitcoin directly from your wallet
If you belong to the second set of Bitcoin holders, then Bringin is a natural fit for you as it allows you to buy or sell Bitcoin directly from your wallet without having to give up custody of your Bitcoin or risk getting your account blocked by your bank (learn about how Bringin makes offramping safe here).
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