Does the bitcoin market need a spot ETF for mass adoption?
02:26, 1 April 2022
A spot bitcoin exchange-traded fund (ETF) has long been seen as a getaway for mass adoption. When the first US-listed BTC futures ETF, ProShares Bitcoin Strategy ETF (BITO), started trading last October, it was widely seen as confirmation of Wall Street’s acceptance of cryptocurrencies and sent BTC to a record high then.
Many market watchers have long been impatiently looking out for regulators giving green light to the BTC spot ETF. While the wait continues, bitcoin’s mass and institutional adoption boomed over the last two years. Does the cryptocurrency market still need a BTC spot ETF?
“Obviously, I think we still need them”, Ophelia Snyder, co-founder and president of Switzerland-based fintech company 21Shares told the panel at CryptoCompare Digital Asset Summit.
Reaching mom-and-pop investors
The SEC regulates ETFs in the US – Photo: ShutterstockOn 14 October, 21Shares in partnership with Cathie Wood registered a proposed BTC futures ETF with the US Securities and Exchange Commission (SEC).
Wood, an outspoken crypto bull, is a fund manager and chief investment officer at Ark Invest. She also sits on 21Shares’ board. The SEC expects to make a decision on the ETF next week.
“The reason why we still need [a spot BTC ETF] actually goes back to my mom,” Snyder said.
“My mom is never going to open a Robinhood account, right? She uses really old school infrastructure. We’re talking Schwab and JP Morgan and big banks that she’s had decades of relationships with, that she is comfortable with. And she’s happy with that.
“That is how she is investing for retirement, that is how she operates her financial life,” she added.
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New crypto investment routes needed
While it has become easier in recent years for investors of all ages to access financial markets as trading platforms proliferate, Snyder believes that certain demographics will not be reached this way.
“We won’t see mass adoption unless the infrastructure is modified. When that happens we are going to engage everyone in a way we would want,” Snyder says.
BTC ETFs are still making waves in the cryptocurrency market. Inflows in BITO hit an all-time high of BTC28,000, according to Arcane Research.
Meanwhile, asset manager Grayscale has gone beyond actively lobbying the SEC to have its $30bn Grayscale Bitcoin Trust (GBTC) converted into a physically backed ETF, with the firm recently threatening to sue the US securities regulator in a recent interview with Bloomberg.
Futures ETFs ‘have a reason to exist’
“Futures products absolutely have a reason to exist,” Snyder says.
“In a similar way, GBTC has a reason to exist, but the thesis that you are buying that product on is actually fundamentally different than just pure bitcoin exposure. There is something else in there that is part of why you are buying the product.”
Snyder points to basis trades. In simple terms, this is when an investor looks to profit from perceived mispricing in the price of an asset, typically the spot versus futures price.
In the context of the crypto market, this currently means taking a position in the spot bitcoin market and opposing one using BTC derivatives, which is not a simple process for the average retail investor.
“The price of bitcoin is there, but it is not the only thing”, Snyder said.
ETFs simplify investment
ETFs have been a huge success – Photo: ShutterstockETFs have revolutionised financial markets since their launch in the early 1990s and StateStreets SPDR ETF, whose leading product, which tracks the US benchmark S&P 500, is the market leader with over $400bn in assets under management.
SPDR’s success has been predicated on offering simple low-cost access to retail investors and 21Shares president also said that a spot bitcoin ETF would offer a similar process for investors looking to access bitcoin.
“There’s still space for something that really just gives you that pure play. I want exposure to BTC using my existing infrastructure. How do you do that? That’s going to be a spot ETF,” Snyder says.
SEC not convinced by spot BTC ETFs
Recent noises from the SEC itself, however, suggest that US authorities are not relenting in their opposition to spot crypto ETFs. In March, the securities regulator rebuffed attempts by NYDIG to launch one of these products and also rejected a similar proposal by GlobalX.
A month earlier, SEC Chair Gary Gensler wrote to US Congressman Tom Emmer on the topic and said that the regulators are still concerned about the potential of “fraud and manipulative practices” in spot Bitcoin ETFs.
Emmer’s tweet said that “this issue remains a priority”, but the signs are that Snyder and her mom will have to wait for some time before spot bitcoin ETFs become a reality in the US.
We received a response from SEC Chair Gensler to our 11/3/21 letter regarding BTC spot ETFs. This issue remains a priority for us and we will continue to oversee the SEC in its mission to maintain fair and orderly markets and facilitate capital formation. pic.twitter.com/WbgSDj7o0T
— Tom Emmer (@RepTomEmmer) February 17, 2022
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