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Bitcoin, the world's most popular cryptocurrency, has been on a roller coaster ride in the past year, reaching an all-time high of over US$69,000 in November 2023, before plunging to below US$40,000 in January 2024. Despite the volatility, many investors are still bullish on the digital asset, especially with the prospect of a spot bitcoin exchange-traded fund (ETF) being approved by the U.S. Securities and Exchange Commission (SEC) soon.
A spot bitcoin ETF is an investment vehicle that would allow ordinary investors to gain exposure to the price movements of bitcoin in their regular brokerage accounts, without having to buy, store, or manage the cryptocurrency directly. Unlike the existing bitcoin futures ETFs, which track the prices of bitcoin derivatives contracts, a spot bitcoin ETF would invest directly in bitcoins as the underlying asset.
According to a recent poll conducted by CoinDesk, a leading media platform for the crypto industry, more than half of the respondents said they would invest in a spot Bitcoin ETF if it becomes available. The poll, which surveyed 1,000 U.S. adults in December 2023, found that 54% of the participants said they would buy a spot bitcoin ETF, while 28% said they would not, and 18% said they were unsure.
The poll also revealed that a spot bitcoin ETF could attract new investors who are not currently involved in the crypto space. Among the respondents who said they would invest in a spot bitcoin ETF, 42% said they do not own any cryptocurrencies, while 58% said they do. This suggests that a spot bitcoin ETF could lower the barriers to entry and increase the adoption of bitcoin among mainstream investors.
The main reasons cited by the respondents for investing in a spot bitcoin ETF were diversification, convenience, and regulation. Many investors see Bitcoin as a hedge against inflation and a way to diversify their portfolios, especially during economic uncertainty and geopolitical tensions. A spot bitcoin ETF would offer a convenient and cost-effective way to access the bitcoin market, without having to deal with the technical and security challenges of buying and storing the cryptocurrency. Moreover, a spot bitcoin ETF would be subject to the regulatory oversight and investor protection standards of the SEC, which could enhance the credibility and legitimacy of bitcoin as an investable asset.
A spot bitcoin ETF is not without its challenges and risks. The SEC has been reluctant to approve a spot bitcoin ETF, citing concerns over fraud, manipulation, and custody issues in the bitcoin market. The SEC has rejected several applications for a spot bitcoin ETF in the past and has delayed its decision on the latest batch of proposals until January 10, 2024. Some of the applicants include BlackRock, the world's largest asset manager, Ark Investment Management, a leading innovator in the ETF space, and Grayscale, the largest digital asset manager.
Another challenge for a spot bitcoin ETF is the competition from the existing bitcoin futures ETFs, which were launched in October 2023 and have attracted billions of dollars in assets under management. Some of the bitcoin futures ETFs include [ProShares Bitcoin Strategy ETF], [Valkyrie Bitcoin Strategy ETF], and [VanEck Bitcoin Strategy ETF]. These ETFs track the prices of bitcoin futures contracts traded on the Chicago Mercantile Exchange (CME), which are based on the spot price of bitcoin. However, these ETFs also incur additional costs and risks, such as management fees, trading commissions, futures contract rollover, and basis risk.
The poll results indicate a strong demand and interest for a spot bitcoin ETF among U.S. investors, especially those not currently invested in cryptocurrencies. A spot bitcoin ETF could offer a simpler and safer way to access the bitcoin market, and potentially boost the price and adoption of the cryptocurrency. However, the approval of a spot bitcoin ETF is still uncertain, and investors should be aware of the challenges and risks involved in this nascent and volatile asset class.
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Disclaimer: Analytics Insight does not provide financial advice or guidance. Also note that the cryptocurrencies mentioned/listed on the website could potentially be scams, i.e. designed to induce you to invest financial resources that may be lost forever and not be recoverable once investments are made. You are responsible for conducting your own research (DYOR) before making any investments. Read more here.
