The U.S. Securities and Exchange Commission (SEC) recently approved spot bitcoin exchange-traded funds (ETFs) on Jan. 10. This marks an important milestone in the growth of Bitcoin and allows millions of Americans to invest in the leading digital currency. In 2023, Bitcoin’s value increased by over 160%, making it a highly desirable investment.
Based in Toronto, Canada, Reza Akhlaghi is a digital marketing and Web3 consultant.
While futures-based crypto ETFs have been available to U.S. investors since October 2021, they are not directly tied to the asset and do not require custody. The approval of spot ETFs means there will be a significant increase in bitcoin buying pressure.
Apart from institutional and retail buyers, private bankers, investment advisers, wealth managers, and robo-advisers are also adding to the dynamics of the spot bitcoin ETF. This allows for easy access to a liquid and secure crypto product without the need for custodianship or reporting. Investors can rely on the ETF issuer to accurately track the performance of the underlying asset.
Currently, there is $7.7 billion invested in the 10 live spot bitcoin ETFs in the U.S., which is considered a “big success” by Sylvester Flood, senior product manager for Morningstar. It remains to be seen if this adoption rate will continue, but it may be helpful to look at markets where ETFs have been trading for years.
In Canada, investors have had access to both spot bitcoin and spot ether ETFs since February 2021. As a result, the country’s global market share in spot crypto ETFs has grown to 46%, according to CoinGecko. The six spot bitcoin ETFs in Canada have a total of $2.79 billion in assets. Despite their well-publicized volatility, Canadian investors have embraced ETFs as a safe financial vehicle that delivers the returns of digital assets. Moreover, investing in crypto ETFs in Canada is eligible for use in registered investment accounts, such as TFSAs and RRSPs.
The impact of spot bitcoin ETFs on the investment management industry in the U.S. is yet to be seen. Some experts believe that these ETFs will bring volatility to 401Ks, while others think they will contribute to the stability of crypto markets.
The market has shown a positive response to spot bitcoin ETFs, with net inflows of $1.1 billion in the week of Feb. 5. To ensure the continued success of this market, it is important for investors and advisers to have a comprehensive understanding of the crypto economy, both technically and from a business model perspective. The global crypto market is continuously growing, with a 34% increase in the number of users from 2022 to 2023, reaching 580 million.
According to Alexandra Levis, founder and CEO of ARRO, a New York-based PR and communication firm serving the ETF markets in the U.S., spot bitcoin ETFs improve access to popular investment opportunities. Education plays a crucial role in addressing the risks, nuances, and growth opportunities associated with ETFs.
Sarah Morton, chief strategy officer at Meetami, a Vancouver-based company that educates wealth management advisers about cryptocurrency, also believes that there is a significant need for education in the digital asset space. With various coins having different use cases and applications, it is important to understand their workings and growth potential. The three-year-old spot bitcoin ETF market in Canada has increased exposure, awareness, and regulatory clarity, and it will be interesting to see if the U.S. market follows suit.
Frederick Pye, chairman and CEO of 3iQ, the Canadian digital asset company that played a crucial role in making spot bitcoin ETFs possible in Canada, believes that there will always be competitive price pressures in the spot bitcoin ETF market, whether in Canada or the U.S. He also emphasizes that ETFs should not be judged solely on fees, as experience, trading, and execution have a more significant impact on returns. Additionally, the existence of firms like MicroStrategy, which has invested in a significant amount of bitcoins, can also be seen as a competitor to ETFs. However, Pye welcomes this diversity in ways to purchase bitcoin.
As the upcoming halving event approaches, there will be a decrease in the supply of Bitcoin, which often drives attention to the cryptocurrency. Pye notes that this process typically induces demand, highlighting the importance of education for advisers. While only 5% of Canadian advisers were educated about digital assets and crypto five years ago, that number has now increased to 40%.
