The Rise of Institutional Investment Through Bitcoin ETFs

The idea of using digital currency as a means of finance by bigger institutes and organizations was never believable.  First of all the idea of plastic money was something that shook people,but that too actually became a thing. Digital currency due to its advanced features became a bigger thing as it is more convenient and trades can securely put their money at risk. Bitcoin now has reached the metaverse and cryptocurrency has bigger brands and institutions investing in it. 

The major problem that occured with cryptocurrency was its untrustful trading. The transactions were anonymous and couldn’t be tracked. Which caused a massive loss of money due to Terra’s crash and FTX Exchange collapse in 2022. This resulted in the exiting of retail investors and stockholders. Jurisdictions have considered regulating the crypto industry furthermore to get rid of such circumstances but whatsoever, crypto still continues to grow and financial institutions are taking steps ahead towards crypto as a trusted source of business and volume exchange. 

Companies are investing in cryptocurrency in various ways. Companies like Microstrategy, Tesla and Square hold crypto on their balance sheets. Which is one of the ways of investing in crypto.another common way  is through EFTs. EFTs or exchange-traded funds is an investment method that helps in tracking prices of bitcoin,Ethereum and other cryptos. 

The institutional investment in crypto is yet to grow but has acquired an early stage. The growth is rapid and once bitcoin EFTs get approved,there will be major transitions in the crypto space as more companies join the platforms. Crypto is evolving day by day. All the loopholes that it had in the early stages are being solved smoothly and it has now become a trusted source for investments. 

Companies like BlackRock, Invesco, Fidelity, Greysclae, ARK Invest, Bitwise WisdomTree, Valkyrie and others are  promoting bitcoin ETFs in a way that is more safer and accurate in its potential rather than other means of finance when it comes to volatility. 

But what are Bitcoin ETFs, and how Bitcoin ETFs are leading the way for institutional investors to bring trillions in the crypto market?

What is an ETF?

Flexible traders who prefer diversifying their portfolios at a lower cost and tax benefits often invest in ETFs. But, what is an ETF? 

An ETF is basically a mixture of Index fund and stock. It has traits of both. Just like index funds most ETFs are passively managed, diversified and low cost. They are bought through a brokerage account and traded on an exchange at any time of the day just like stocks. It is a type of pooled investment security that tracks a particular index, sector, commodity, or other asset.

What is a Bitcoin ETF?

A bitcoin ETF tracks the price of bitcoin. They are pools of bitcoin-related assets offered on traditional exchanges by brokerages to be traded as ETFs. These ETFs are for the traders and investors to comfortably invest in bitcoin and consider it a regulated means of finance. 

How are Bitcoin ETFs different from direct investments in Bitcoin?

The major point that is to be described for beginners is that ETFs do not provide direct ownership of bitcoin. Which means two things. First, you don’t have to register with a crypto exchange to maintain an account for holding any volume. Second, you don’t need to have a crypto wallet as you don’t hold the  bitcoin directly. You don’t have to go through the hassle of having to invest in cryptocurrency for an ETF. The price of an ETF fluctuates with the price of Bitcoin. But ETF trades in traditional market exchanges rather than a crypto exchange.  

Fight to Launch Spot Bitcoin ETF in the U.S.

Bitcoin exchange-traded funds have become popular globally but still have some regulations to be faced by US Sec for the Spot bitcoin ETF. They have landed everywhere like in canada, brazil, and dubai. It was also launched on the New York stock exchange by ProShares bitcoin futures in October 2012.

It is still rejected by US securities and Exchange commission (SEC) due to its potential with the market manipulation among  traders. 

Here are the few Bitcoin ETF applications currently in play

1. BlackRock

BlackRock, the world’s largest asset manager with over $9 trillion in assets under management, sparked a debate in the Tradfi world when it filed an application for a Bitcoin spot ETF on june 15. The filing proposed Coinbase as the crypto custodian and spot market data provider, with BNY Mellon as cash custodian. 

2. Ark Invest

It is a firm led by Ark Invest, a company run by Cathie Wood, asked for permission to create the Ark 21 Shares ETF in June 2021. They teamed up with a Swiss company, 21Shares AG, to create the ARK 21Shares Bitcoin ETF. After the approval, this ETF will be available for trading on the Cboe’s BZX Exchange with the symbol ARKB.

3. WisdomTree

WisdomTree is a NewYork based asset manager that has a past experience of running a Bitcoin. In march 2021, It filed an application for the US Bitcoin spot. The application got delayed continuously and ultimately got rejected later in 2021. WisdomTree filed a new application in 2023 after the BlackRock’s filing. 

4. Invesco & Galaxy Digital

Galaxy Digital and Invesco partnered to request approval for a Bitcoin ETF on September 22, 2021, named the Invesco Galaxy Bitcoin ETF. They plan for this ETF to be supported by actual Bitcoin, not financial agreements like futures. Invesco Capital Management LLC is behind the request, but we don’t know yet which company will hold the Bitcoin for this ETF.

5. VanEck

VanEck was among the first to apply for a Bitcoin ETF. They first tried with the VanEck SolidX Bitcoin Trust in partnership with SolidX back in 2018. Although they withdrew that application in September 2019, they made another attempt by filing an application for the VanEck Bitcoin Trust with the SEC in December 2020. If approved, the trust’s shares would be available for trading on the Cboe BZX Exchange.

6. Fidelity

In March 2021, there was a surge in requests for Bitcoin ETFs. Fidelity joined this wave with the Wise Origin Bitcoin Trust, which wasn’t entirely unexpected. Just a few weeks before, Fidelity’s Director of Global Macro, Jurrien Timmer, had mentioned that Bitcoin had a special edge over gold. If approved, Fidelity Service Company Inc would oversee the trust, while Fidelity Digital Assets would securely hold the Bitcoin that backs the ETF.

7. Valkyrie

Valkyrie, a relatively new player in this competition, submitted its initial request for a Bitcoin ETF in January 2021. This ETF would use the Chicago Mercantile Exchange’s Bitcoin reference price and be available for trading on NYSE Arca. In their proposal, the company mentioned that this ETF would offer investors an effective way to use different investment strategies. To keep the Bitcoin safe, a crypto custodian called Xapo would store it in a secure, offline storage method.

How Bitcoin ETFs Could be Effective for Crypto Market 

JPmorgan still has hopes of getting Bitcoin ETFs to be approved soon by the SEC. Let’s have a look at the effects of Bitcoin ETF approval on the cryptocurrency Market. 

Crypto Quant, a firm for data analytics, has recently shared a report that says that if the bitcoin ETFs get approved, it can grow Bitcoin’s Market capitalization to $900 billion with the total crypto market expanding by an additional $1 trillion.

The report suggests a positive view about the bitcoin ETF to a bigger push like the one in 2020-20 when bigger financial institutions added bitcoin to their balance sheets. This time it could bring access for  more clients through the spot Bitcoin ETFs. 

Cryptoquant  report further suggests that only with the allocation of 1% of the bitcoin ETFs by the issuers under Assets Under Management(AUM) can bring almost $155 billion to the bitcoin market. Under this scenario, Bitcoin’s price could potentially surge to as much as $73,000.

If we look at the previous times, Bitcoin’s market capitalization has overgrown at a rate 3-5 times bigger than its realized capitalization. This pattern indicates that the market capitalization for bitcoin increases by $3 to $5 with every $1 of the new investments in the bitcoin market. 

On October 16th, Bitcoin (BTC) experienced a notable price increase, rising from $27,900 to $30,000 due to the delete of a misleading report regarding a potential spot ETF approval. This false report was initially published on the Cointelegraph social app X, formerly known as Twitter, but it was promptly removed after approximately 30 minutes. But this small duration of this false information sparked a great impact on the crypto prices.  

According to data from CoinGlass, approximately $72 million worth of short positions were liquidated as Bitcoin reached the $30,000 mark, while around $31 million in long positions were liquidated during the subsequent correction.

Sum Up

The rise of institutional investment in cryptocurrencies, particularly through Bitcoin ETFs, marks a significant shift in the financial landscape. What was once considered impossible is now becoming a reality as digital currencies gain the trust of bigger institutions and corporations. While the crypto space faced challenges, such as unregulated trading and associated losses, it has matured and evolved.

Bitcoin ETFs offer a regulated and accessible means for institutional investors. The potential approval of Bitcoin ETFs in the United States is a focal point, which is yet to be discovered. Bitcoin ETFs’ approval could boost Bitcoin’s market capitalization which highlights the crypto market’s continued volatility, even as institutional investment plays a growing role in shaping its future.

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