Keys | The new bitcoin exchange-traded funds: can the cryptocurrency break the $100,000 ceiling?

The cryptocurrency industry already has a new milestone in its short history: the approval of a spot Bitcoin ETF by the US Securities and Exchange Commission (SEC). The novelty adds to the rally that the main crypto asset has been alive since October of last year, and whose price remains above 46,000 dollars (41,800 euros). The asset managers BlackRock, Fidelity, ARK Investment, Invesco, WisdomTree, Bitwise Asset Management, Valkyrie and four others will be able to start listing these funds from this Thursday.

The expectation is no less: Bloomberg Intelligence estimates that this market could reach 100 billion dollars (91.2 billion euros) in a short time. However, the real question for the sector is how the price of the currency that reigns in the crypto market will react. For the moment, the reaction has been cautious: Bitcoin has barely reacted in the last day, barely exceeding $46,000. That does not prevent many analysts from considering that the asset could surprise in the coming months. “Overcoming the $100,000 barrier this year is a real possibility,” says Eric Demuth, co-founder and CEO of the exchange Bitpanda.

Although there are funds with some similarities, such as free investment funds that operate in Spain, there is no listed instrument with these characteristics on the market. Below are some keys to this important decision for the industry.

What is an ETF?

Exchange-traded funds (known as ETFs) are a financial asset that is half stock, half investment fund. They can be bought and sold on the markets in which they are listed, like equity shares. But, at the same time, it allows you to invest in a diversified portfolio of stocks, bonds or raw materials. The different returns on your assets are reflected together in a single total unit and always based on the proportion of the investment.

Unlike funds, which require a couple of days to execute buy and sell orders, ETFs are traded in open markets, like stocks, which gives them greater liquidity and transparency. It is one of the most revolutionary inventions in the financial industry in recent decades. The first of them, the S&P 500 Trust ETF from the firm State Street Global Investors, was created in 1993 and today remains the largest in the world, close to $400 billion.

How will a bitcoin ETF work?

The new Bitcoin exchange-traded funds allow investors to gain exposure to Bitcoin values, but without the need to directly buy or sell the cryptocurrency on traditional platforms. exchanges, as happened until now. The bitcoin spot ETF will fluctuate with the price of the digital asset and replicate its price. If the digital currency goes up or down, the exchange-traded fund does the same.

In this case, the supervisory body has been particularly clear about the limits of the new funds. ”Today's action by the Commission is limited to ETFs on a commodity that is not a security, bitcoin. It should in no way indicate the Commission's willingness to approve listing rules for cryptoasset securities,” stressed Gary Gensler, chairman of the United States Securities and Exchange Commission.

What are the advantages for investors?

The main advantage of these investment vehicles is the diversification of portfolios and facilitating exposure to different assets in a single product. The ease of the instrument and the interest of investors has allowed it to be “the most disruptive trend in asset management in the last 20 years,” according to consulting firm Oliver Wyman. According to these experts, there are more than 6.7 trillion dollars invested through these instruments.

In the case of cryptocurrencies, ETFs will allow interested parties to invest in this asset through the same manager with which they operate on the stock market, for example, and without the need to open a new account in a exchange.

Can you invest from Spain?

The Spanish investor is not limited only to ETFs listed in Spain. Depending on your broker, you can access virtually all EU ETFs, as long as they meet a number of conditions. However, since 2018, intermediary agents based in Europe no longer give individual investors access to funds listed on US stock exchanges, as is the case in this case.

This leaves interested parties the option of using a broker that is not regulated by the European Securities and Markets Authority (ESMA). That is, firms established in other countries outside the European Union that allow non-residents to open accounts. There, stakeholders will face the challenge (and additional costs) of transferring funds across the borders of the common market.

Does a Bitcoin ETF reduce volatility?

Yes and no. Cryptocurrency ETFs are issued by regulated companies that operate in normal regulated markets, such as BlackRock and Fidelity, which are approved by the authorities in the countries where they operate. In that sense, operations are subject to supervision to avoid fraud, asset laundering or the financing of illegal activities, problems that have plagued the crypto industry in recent years.

However, this new vehicle does not represent a change with respect to the very nature of the asset. “The price of cryptocurrencies carries a high speculative component that can even lead to the total loss of the investment,” highlights the National Commission of Markets and Securities.

What disadvantages do ETFs have?

Management and operating facilities are not free, of course. Exchange-traded funds have their own fees, something investors would not have to face if they chose a direct investment in cryptocurrencies. In the long term, these expenses will affect the benefits compared to owning the cryptocurrencies directly and storing them in your own wallet.

In addition, those who maintain investments in cryptocurrencies through a fund will not be able to use them like regular currencies to make payments or purchases, an alternative that has not yet fully taken off.

Why has the SEC changed its mind?

The market estimates that the approval of the bitcoin ETF by the US authorities derives from the ruling issued by the local Court of Appeals in August, which allows the Grayscale Bitcoin Trust (GBTC) to be converted into a bitcoin ETF. The US market supervisor, the SEC, decided not to appeal the Court's ruling and took steps towards approval.

This should not be confused with a change in Washington's sentiment towards cryptocurrencies. Last year, the SEC took a reactive strategy with the sector, with heavy fines and sanctions, which even shook Binance, the largest platform in the sector, present in more than 50 countries and with more than 167 million users throughout the world. world. However, the United States has not moved forward with comprehensive legislation for the sector, something that Europe has done with the approval of MiCA.

What are the industry expectations?

After the waves following the fall of FTX, which became the seventh most important cryptocurrency exchange platform, the industry is looking for good news. The rapid rise in prices in the last three months, breaking through the ceiling of $45,000, generated enthusiasm in the sector.

A report from JPMorgan, published in November, argues that rather than attracting new money, the approval of the new funds will likely trigger a shake-up of existing investments within the crypto space. At the same time, he warns that the approval from the authorities does not translate into regulatory relief, especially after the long crypto winter experienced last year.

The actors who have dominated the sector until now have also celebrated the news. Javier García de la Torre, director of Bina
nce Spain and Portugal, points out that the announcement “illustrates a new level of acceptance, maturity and generalization of the crypto market.” For the largest global cryptocurrency exchange platform, “direct investment in bitcoin and various regulated instruments will coexist” since the different solutions address “different risk profiles and preferences.”

For his part, Eric Demuth, co-founder and CEO of Bitpanda, agrees that exchange-traded funds will mark a strong change and will position themselves as “a key tool for institutions and large banks in the United States.” “Over time, the additional liquidity in the system along with other factors such as the next halving of Bitcoin in mid-April, or the likely drop in interest rates, could lead to a six-figure Bitcoin price in the long term,” notes Demuth.

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