For the majority of their history, cryptocurrencies weren’t exactly considered the most reliable investment; on the contrary, they were seen as a new gimmick, perhaps even a scam or a pyramid scheme, and overall inferior to the usual investment assets. As of now, however, tides began to change, and the crypto industry entered a new era, with the first spot Bitcoin ETFs having been approved by the U.S. Securities and Exchange Commission in 2024. This signified a new era for crypto investors, especially emerging ones, who now have more opportunities to access digital assets without having to deal with complicated (and sometimes quite unsafe) technologies such as crypto wallets or exchanges.
For those unfamiliar with the topic, a spot Bitcoin ETF (exchange-traded fund) is an investment that exposes ordinary investors to Bitcoin’s price moves, unlike futures-based Bitcoin ETFs, which track Bitcoin prices indirectly using various derivatives. These ETFs hold Bitcoins in a secure digital vault managed by registered custodians and mirror the market price. They begin by purchasing Bitcoins from other holders or authorized crypto exchanges and then storing them in a digital wallet, which usually has several security levels (such as offline storage), which reduce security risks. Then, the ETF issues shares corresponding to the number of Bitcoin it holds. These shares are available both on traditional stock exchanges and crypto exchanges, which allows mainstream investors to invest indirectly in Bitcoin through their brokerage accounts in a regulated way.
With the approval of Bitcoin ETFs, all major financial players, including BlackRock, Fidelity, Ark Invest and Franklin Templeton, launched competing Bitcoin ETFs, which is quite surprising, as crypto was often seen as illegitimate by these older finance players. BlackRock’s iShares Bitcoin Trust (IBIT) and Fidelity’s Wise Origin Bitcoin Fund (FBTC) asserted early market domination, quickly becoming some of the fastest-growing ETFs in U.S. history. As of now, high levels of trust in established custodians such as Coinbase, retail and private investors have become more open to investing in crypto through these funds.
When these ETFs were still anticipated to be approved, traders and speculators were ‘’front-running’’ the announcement for months, pushing prices past $70 000 for the first time in history. It may seem that it was based purely on hype, but there were more factors contributing to this. As previously said, the structure of spot ETFs requires the direct purchase of BTC to back the issued shares, which creates real, sustained demand for the asset. Even though the volatility was high at first due to all the hype surrounding this topic, by now it has become a lot more stable, and ETF-driven demand is now seen as a stable tailwind for both the crypto and the traditional finance industry. The launch of crypto ETFs can be compared to the launch of gold ETFs in 2004, which caused a long, multi-year gold bull market, and this crypto ETF launch had a similar effect, also creating a bull market for Bitcoin.
However, this technology still has its own problems. The most obvious problem is that you don’t own actual Bitcoin. Instead, you hold a share in a fund that holds Bitcoin, so you can’t custody, spend or transfer it. Fees (typically ranging from 0,2%-0,4%) also play a role, eating up some of the potential profits. Last but not least, there’s correlation risk, which arises from the traditional investors, such as Fidelity, being involved in Bitcoin trading, potentially making it more correlated with broader markets and decreasing its diversification value.
But still, this launch is a milestone in the financial industry development, because for the first time, decentralized technologies and crypto were integrated into the traditional financial industry. More similar ETFs, such as the Ethereum ETFs are currently being launched, and the future of this industry trend is looking quite bright. While still being an extremely new thing, this change in the industry may be the first step in the financialisation of crypto.
– Serhii Iievliev