What are the SPOT bitcoin ETFs and why is this cryptocurrency gaining strength in the world?

Bitcoin proponents used to argue that one of the advantages of investing in the cryptocurrency was being “outside the system.”

Instead of buying shares on Wall Street, the independence promise of the bitcoiners was the creation of a system parallel to that of traditional money.

It did not seem strange that his war proclamation, clothed in a libertarian ideology, was “death to the dollar” and to central banks around the world.

Little remains of all that. In recent years, large investment funds have decisively entered the playing field by incorporating cryptocurrencies into their investment portfolios, despite criticism from skeptics for constant digital thefts, large-scale frauds (such as the one perpetrated a few months by Sam Bankman-Fried​) and the warnings from authorities in the United States and the European Union about the risks posed by the currency.

That bet that investment funds made on bitcoin ended up paying off, after this Wednesday the US Securities and Exchange Commission (SEC) approved the SPOT bitcoin ETF, inaugurating a new era for the largest cryptocurrency of the world.

Thus, starting this Thursday, bitcoin is traded on the stock market as if it were a share of a company. Weird, no?

What is a bitcoin ETF SPOT

Let's go in parts. What is a SPOT bitcoin ETF?

It is an exchange-traded fund that tracks the price of bitcoin.

If you put money in that fund, when the value of bitcoin goes up, you win, and when the value of bitcoin goes down, you lose, just like any other investment product listed on the financial markets.

The difference is that instead of directly buying bitcoin on an exchange or cryptocurrency exchange platform, you now invest in a publicly traded fund, in the same way you could buy a share of Google or Apple.

Usually people or companies choose an ETF (Exchange Traded Fund) with the idea of ​​diversifying their investments by betting on a group of stocks (or other investment instruments) instead of putting their money in a single company.

There are ETFs of technology companies, raw materials, metals and anything you can imagine. There are also ETFs that follow the behavior of stock indices such as the S&P 500 or the Dow Jones.

And as of this Thursday there is also a publicly traded bitcoin ETF.

Why is it a SPOT fund? Simply because it is a fund that makes transactions with the price of the moment and that is why it is called a “spot” fund, unlike future contracts that are made on the stock market between two parties that speculate on what the price of a active in the future.

That is why the new investment fund, approved for the first time in US history, is a SPOT ETF, allowing the investor to buy and sell bitcoin with the price of the cryptocurrency at the time the operation is made.

You are not buying bitcoin

But why would someone prefer to buy a bitcoin ETF instead of buying bitcoin directly?

Basically, experts say, because it is a simpler operation.

Anyone who invests in a bitcoin ETF is not directly buying the cryptocurrency, they are putting their money in the ETF that follows their movements.

In this way, he or she is not the “owner” of the digital currency, but rather acquires a participation in the investment fund.

You can sell and buy your part invested in the ETF at any time, without having to go to your electronic wallet, find the secret key of your bitcoin and make the transaction on a cryptocurrency platform.

But, like any transaction made on the stock market, you have to pay the cost of having someone else manage your funds, that is, a commission.

The new era of bitcoin-traded funds on the stock market

That bitcoin can be traded on the stock market is something unprecedented.

Skeptics have not welcomed the news because it can be interpreted as a boost from the US authorities to the digital currency.

Something like a sign of legitimacy to a currency that in its 15 years of history was always outside of any type of regulation.

On the other hand, as of this week, bitcoin transactions through the 11 ETFs approved by the financial authority are part of a regulated environment, something that a few years ago seemed unthinkable.

Of course, SEC approval was not quick. Cryptocurrency advocates had to wait 10 years for the authorities to finally give the green light to the stock market listing of this type of funds.

Will this be the beginning of the institutionalization of bitcoin? Will bitcoin cease to be seen as a digital currency used in the shadows by those dedicated to illegal commerce? Will bitcoin become an asset as legitimate as any other instrument of investment, despite the fact that, as its critics say, it has no value backing?

For now, the price of the digital currency rose on Thursday to briefly reach US$49,000, the highest value since December 2021. But, as has historically happened with this high-risk investment, it could plummet again at any time.

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