In a game-changing development, the anticipation and eventual approval of Bitcoin Exchange-Traded Funds (ETF) have spurred Bitcoin's surge by 164% in 2023, reaching over $47,000. This remarkable increase sets a positive tone for the beginning of 2024.
A Decade-Long Journey to BTC ETF Approval
For more than ten years, the cryptocurrency industry has awaited the approval of a Bitcoin spot ETF. Initially proposed by the Winklevoss twins in 2013, over 30 similar applications faced rejections from the SEC. A crucial turning point occurred last year when BlackRock, the world's largest asset manager, applied for a Bitcoin spot ETF. This move prompted other asset managers to follow suit. Another significant stride came in August, as Grayscale Investments secured a legal victory against the SEC, leading to a reevaluation of spot Bitcoin ETF applications.
Spot Bitcoin ETFs Unveiled
A spot Bitcoin ETF holds actual Bitcoin, differentiating it from derivatives tied to Bitcoin prices. The approval of spot Bitcoin ETFs faced regulatory hurdles due to alleged concerns about potential market manipulation.
Operational Mechanism of Approved Bitcoin ETFs
Recently approved Bitcoin ETFs manage a Bitcoin pool and issue shares accordingly. Authorized participants play a pivotal role by adjusting share quantities based on investor demand. As investors buy ETF shares, participants channel cash to the trust, expanding the supply of ETF shares. Simultaneously, as the trust accumulates more Bitcoin, the pool grows with increased investor participation. Conversely, when investors sell Bitcoin ETF shares, the process contracts the supply of ETF shares, reducing the trust's Bitcoin holdings.
Cost Considerations and Security Measures for Investors
Asset managers impose varying annual fees for ETFs. Bitwise's Bitcoin ETF starts at 0.2%, while Grayscale Investments charges up to 1.5%. Some managers offer initial fee-free periods to attract investors.
Security remains a paramount concern for Bitcoin ETFs. Approved ETFs rely on third-party custodians for asset safety, with Coinbase being a preferred choice.