All eyes are on the US Securities and Exchange Commission as it makes a crucial decision that would seriously impact the embattled cryptocurrency sector. It’s become increasingly clear that the agency is poised to lessen its stance on digital assets and approve listing the first Bitcoin Exchange Traded Fund.
Bitcoin ETF Competition
It is one of the most expected and talked about developments that helped bolster investors’ sentiments about the sector late last year. Bitcoin’s flagship cryptocurrency more than doubled in value as it rallied by 154% on talk of a possible Bitcoin ETF early this year. Such an ETF is one of the key points expected to add a layer of credibility and legitimacy to the embattled sector.
Given the regulatory uncertainty, many institutional investors have been on the fence over investing in digital assets for the longest time. The collapse of the FTX exchange rattled the sector, fueling a ferocious sell-off. Nevertheless, the regulatory uncertainty has always been a bone of contention that has always forced many institutional investors to stay on the fence.
The approval of a Bitcoin ETF would, for once, bolster sentiments, signaling regulators bid to go slow on a sector that has so far operated under no clear regulations. In addition, the Bitcoin ETF is expected to provide investors with one of the best ways of gaining exposure to digital assets without owning the real asset.
While the Bitcoin ETF is becoming a reality, attention now turns to the details of how the Bitcoin ETF will trade. While many Bitcoin ETFs are expected to come into play, the cost of trading the securities would be a major consideration. Reports indicate more than a dozen Bitcoin ETFs are competing for attention, which means buyers will be highly price-sensitive.
Potential Bitcoin ETF issuers are already engaged in a price war as they look to attract the most investors into their products. Cathie Wood, who has partnered with 21 Shares to launch a Bitcoin ETF, has already scrapped all the fees for the first six months for trading the ETF after initially hinting at a 0.8% fee structure.
Amid the price wars, it still needs to be clear how accurate the new Bitcoin ETFs will be at tracking the actual Bitcoin price. Bitcoin futures ETF has been successful in tracking the cryptocurrency. Given that the spot market for the digital asset still needs to mature, it could present significant challenges in tracking the price.
Another bone of contention is whether the Bitcoin ETFs will trade at a discount or premium to their net asset value. There are already concerns that the creation and redemption process agreed upon on the creation of spot Bitcoin ETFs could end up causing Bitcoin ETFs to trade at a premium to their Net Asset Value.
Finally, the amount of money the new Bitcoin ETF will attract is unclear. Bitcoin has exploded in value, rallying by more than 6% in 2024 on expectations that institutional investors will use the opportunity to pile investments into the sector. The new Bitcoin ETFs struggling to meet expectations on capital inflows could prove to be catastrophic, something that could result in Bitcoin pulling back significantly.