In recent years the institutional interest and demand for exposure to Bitcoin has risen. From 2020 a number of investment firms have been applying for approval to offer Bitcoin based products to clients. Recent years have seen an upsurge in spot ETF applications by major institutions.
A Bitcoin spot ETF is an exchange-traded fund that tracks the price of Bitcoin and holds Bitcoin directly. Investors would be able to buy and sell shares of the ETF on a stock exchange, just like any other stock.
US Securities & Exchange Commission (SEC)
Bitcoin spot ETFs are different from Bitcoin futures ETFs, which track the price of Bitcoin futures contracts. There are currently a number of Bitcoin futures contracts already in place and available to investors after SEC approval. The futures contracts are agreements to buy or sell Bitcoin at a predetermined price on a future date.
Investors will be able to buy and sell shares of a Bitcoin spot ETF on a stock exchange. Even though this method does not involve self custody some see it as a more convenient method of investment.
It is generally accepted that a Bitcoin spot ETFs will attract more institutional investment to the Bitcoin ecosystem. Kyle Torpey from Investopedia suggests a spot ETF is ‘ a key stepping stone for mainstream financial acceptance’. Such an approval would adding legitimacy to the investment according to Torpey.
With any investment there are also risks associated. It is possible the SEC could impose new regulations on Bitcoin spot ETFs at any stage in the future. Any ETF is vulnerable to hacking which will also be the case with a Bitcoin spot ETF.
Overall, Bitcoin spot ETFs have the potential to be a major catalyst for the growth of the Bitcoin market.
The SEC has not yet approved any spot Bitcoin ETFs. However, a number of firms have filed Bitcoin spot ETF applications with the SEC. Some experts believe that it is only a matter of time before the SEC approves a spot Bitcoin ETF.
Larry Fink (below) is the CEO of Blackrock, the largest asset manager in the world. He believes that Bitcoin has now become a ‘flight to quality’ for investors. Fink also feels a demand has developed for Bitcoin around the world.
In order to gain a better understanding of the ETF applications, it is important to gain an insight into the institutions behind them.
Blackrock
Global investment manager who help millions of people invest to build savings that serve them throughout their lives.
11 million+ pension schemes managed in the UK, £500 billion invested in the UK on behalf of clients. $1.8 trillion of net inflows generated over the last 5 years with over 35 million Americans investing with them.
Blackrock manage money for institutional clients like corporate or public pension plans. They provide investment solutions that help both professional and personal investors build long-term wealth.
Blackrock currently have invested in Bitcoin mining company Marathon Digital, with 8.6 million shares. They also own 8.10% of business intelligence company, MicroStrategy who hold over 152,800 Bitcoin (~$4.5 billion) on their balance sheet.
Grayscale
The Grayscale Bitcoin Trust (GBTC) is a digital currency investment product. GBTC makes Bitcoin (BTC) available to individual and institutional investors.
Unlike a direct investment in Bitcoin, GBTC offers a more traditional investment in the form of shares.
As of October 2023, GBTC had $17.4 billion in assets under management
Bitwise
Based in San Francisco, Bitwise is one of the largest and fastest-growing crypto asset managers. They offer both index and active strategies across a wide array of investment vehicles.
The firm is known for creating the world’s largest crypto index fund (OTCQX: BITW). Bitwise focuses on partnering with financial advisors and investment professionals to provide quality education and research. Bitwise currently have over $1 billion in assets under management
VanEck
“Don’t settle for the conventional. Dare to be different.” CEO Jan van Eck.
VanEck have $76.4 billion in assets under management. They offer value-added exposures to emerging industries, asset classes and markets as well as differentiated approaches to traditional strategies.
Valkyrie
Valkyrie investments, is a top tier financial services firm with over $1 billion in assets under management. They bridge the gap between traditional finance and the rapidly evolving digital asset industry.
Invesco
Invesco is another one of the world’s largest global investment companies. They currently manage over $1.5 trillion of assets. Invesco argue that the lack of a spot bitcoin ETF pushes investors towards riskier alternatives, as seen in insolvencies like FTX.
Fidelity
Fidelity offer financial planning and advice, retirement plans along with wealth management services to over 43 million clients. They aim to harness innovation to create new opportunities for their clients to stay ahead of evolving financial needs. Fidelity currently have assets under administration which amount to $10.3 trillion.
ARK
ARK is a global asset manager specialising in thematic investing and disruptive innovation. Their aim has always been to find the ‘next big thing’ with particular focus to emerging products, services and technologies.
The parent company of Ark Investment Management, Ark Invest, has acquired specialist ETF issuer Rize ETF from AssetCo.
Rize ETF, which was founded in 2019, will be renamed Ark Invest Europe as part of the transaction. The firm’s purchase marks the start of Ark’s bid to expand into Europe and the UK. It will add approximately $452m (£365.8m) in assets under management to Ark’s $25bn (£20.2bn).
WisdomTree
WisdomTree is a global financial innovator, offering a well-diversified suite of exchange-traded products (ETPs),models, solutions and products leveraging blockchain-enabled technology. They empower investors and consumers to shape their future. WisdomTree also support financial professionals to better serve their clients and grow their businesses.
WisdomTree currently have just over $95 billion in management globally.
Timeline ahead
Filings for approval by the SEC date back to December 2020. Re-fillings and new filings in recent years have placed pressure on the SEC to deliver decisions. In an unprecedented move, the SEC has recently been ‘working’ with issuing companies to gain better understanding of their applications.
All filings have a number of deadline dates which culminate in a final deadline. The first final deadline is ARK’s Bitcoin ETF refiling. The SEC must provide a decision by January 10th 2024. A decision can be announced at any date before this for ARK.
The other applications have final deadlines set for mid March. The general consensus among CEOs of these firms is the decisions will be delivered all at once. This could be at the end of 2023 or with ARKs deadline on January 10th 2024.
The approval of a Bitcoin ETF holds major implications for the Bitcoin market and the broader financial industry. It would provide a regulated method to gain exposure to Bitcoin, which in turn increases demand for the asset.
Former BlackRock senior executive Steven Schoenfield spoke at the digital assets summit in October about the size of the U.S. institutional market, financial advisor market and self-directed retail investors and how demand is high for exposure to Bitcoin. He also commented on the approval of Bitcoin ETFs, stating: ‘If a Bitcoin spot ETF is approved, there could be an inflow of $150 to $200 billion into Bitcoin investment products over three years, doubling or tripling current assets managed in Bitcoin products,’
Institutional investors have recognised the validity of Bitcoin. With increased regulation and approval this could signal a move towards these investors gaining exposure to Bitcoin.
Risks, challenges and regulatory uncertainties are always associated with investments and the industry. Currently only the SEC know the path ahead for these Bitcoin Spot ETFs. The pivot from some firms would suggest, in the words of BlackRock CEO, Larry Fink, ’it could revolutionise finance’.
