In December 2023, Bitcoin surged close to $45,000, marking a staggering 170% increase from its value at the year’s onset. This impressive rally followed a bleak period in 2022 when Bitcoin’s value plummeted, with many doubting its potential to rebound, primarily due to the collapse of the FTX crypto exchange platform and a U.S. banking system crisis. This unexpected spike in the price of Bitcoin has, therefore, caused a wave of hope and happiness among crypto enthusiasts.

A significant catalyst was the optimism surrounding the potential approval of a spot Bitcoin ETF by the U.S. Securities and Exchange Commission (SEC). In this blog, let’s see the impact of Bitcoin ETFs, its major participants, and other related things.

First things first, what is Bitcoin ETF? Let’s find out in the following section.

What is Bitcoin ETF?

A Bitcoin Exchange-Traded Fund, commonly known as a Bitcoin ETF, represents a financial instrument composed of Bitcoin or assets relatively associated with Bitcoin’s price. Unlike cryptos, which are usually traded on crypto exchanges, Bitcoin ETFs are bought and sold on traditional financial exchanges.

Theoretically, a company buys Bitcoin, secures it, and offers it for trading on established exchanges. Until Grayscale’s recent win, the proposals for crypto ETFs have consistently faced rejection by the U.S. Securities and Exchange Commission (SEC), resulting in the absence of a direct ETF representing the underlying crypto.

Presently, the underlying assets within Bitcoin ETFs are tied to Bitcoin futures contracts that are actively traded on the Chicago Mercantile Exchange (CME).

The basic idea for a Bitcoin ETF can be traced back to when investors and financial intermediaries observed the surging value of Bitcoin and the growing popularity of this digital currency. Importantly, it became apparent that there was an opportunity to generate profits by engaging in the buying and selling of Bitcoin.

For a better understanding of Bitcoin ETF, click here.

With all the anticipation going around Bitcoin ETFs in the crypto market, let’s look at the top applicants waiting for the approvals.

Top 8 Bitcoin ETF Applications in the Play

• ARK Invest & 21 Shares

Partnering with 21 Shares, ARK Invest, managed by Florida-based Cathie Wood, refiled for a Bitcoin ETF on April 25, previously rejected by the SEC. Their proactive approach hints at potential approval precedence over others.

• BlackRock

Despite CEO Larry Fink’s prior skepticism, BlackRock’s June 15 filing signified a shift in perspective, referring to Bitcoin as “digital gold.” This $9 trillion asset manager’s move ignited momentum, boasting a 99% win rate in ETF filings and a 2022 collaboration with Coinbase.

• Bitwise

Following BlackRock, California-based Bitwise initiated its Bitcoin ETF filing on June 16, aiming for redemption after a 2021 SEC rejection. Their diverse offerings, including NFT indexes, reflect evolving investor interest, reaching $100m in managed assets.

• Invesco & Galaxy Digital

On June 20, Invesco and Galaxy Digital jointly filed an ETF application, emphasizing investor protection against potential Bitcoin-related risks and revisiting a withdrawn 2021 futures ETF submission.

• WisdomTree

New York-based WisdomTree’s June 20 filing marked a renewed SEC application, backed by an $87 billion asset management portfolio, after a 2022 setback.

• Valkyrie

Valkyrie Funds proposed its Bitcoin ETF on June 21, specializing in digital asset exposure and managing notable funds through strategies like $BTF and $WGMI.

• VanEck

With a $76.4 billion asset management portfolio, VanEck, emphasizing regulatory unpredictability, refiled for a Bitcoin ETF on June 22, seeking a breakthrough after earlier rejections.

• Fidelity Investments

Joining post-BlackRock, Fidelity Investments, with $4.5 trillion under management, eyes redemption for its Wise Bitcoin Trust, previously declined by the SEC in 2022.

How Will the Bitcoin ETF Fee Play an Important Role?

The competition among 13 applicants for a Bitcoin Exchange-Traded Fund (ETF) approval hinges significantly on their proposed management fees. Only six of these contenders have disclosed their fee structures, making this a pivotal consideration for potential investors as approvals loom. While all ETFs will track Bitcoin, the fee structure emerges as a distinguishing factor in their attractiveness to investors.

Experts emphasize the critical role of fees, suggesting that while issuers need not offer rock-bottom rates, excessively high fees will undermine competitiveness. These fees, termed expense ratios, cover essential custodial services and marketing costs. Recent data indicates a declining average fee of 0.37% for mutual funds and ETFs in 2022, contrasting with 0.91% two decades prior.

Invesco and Galaxy set an ambitious precedent by waiving fees for the initial six months, subsequently introducing a 0.59% charge. Conversely, Fidelity emerged as the frontrunner with a minimal fee of 0.39%, overshadowing Ark, 21Shares, and Valkyrie’s 0.80% proposal. With BlackRock’s fee disclosure pending, experts anticipate a competitive range, potentially aligning with Fidelity’s rate. They attribute Fidelity’s potential edge to its integrated approach, leveraging in-house custodianship and direct investor access, positioning them favorably in this burgeoning ETF landscape.

Impact of Bitcoin ETF Approval on Bitcoin

The impending launch of a Bitcoin ETF marks a pivotal moment, attracting a broad investor spectrum, from individual retail traders to significant entities like pension funds. Notably, the Bitwise ETF has garnered a hefty $200 million seed investment, signaling heightened anticipation and buying momentum. While retail investors typically target short-term gains, pension funds adopt a long-term perspective, potentially locking up bitcoins and limiting market circulation, impacting liquidity.

Highlighting investor sentiment, the HODL Wave indicator reveals that over 70% of Bitcoin supply remained stagnant in the past year, and 30% remained inactive for five years.

Drawing parallels with gold, Bitcoin’s 2023 surge of 169% starkly contrasts with gold’s 11% growth, prompting speculation of capital reallocation from gold’s $13.9 trillion market to Bitcoin’s $881 billion sphere, underscoring Bitcoin’s emerging prominence as the ‘digital gold.’

Bottomline Thoughts

The most anticipated launch of a spot Bitcoin ETF signals the beginning of a revolutionary era in the crypto space, enhancing the credibility of Bitcoin and attracting interest from diverse investor segments. Although this move is expected to increase the legitimacy of Bitcoin and simplify the movement of capital, it poses complex difficulties for ecosystem developers.

More specifically, it might discourage creative projects on the core blockchain of Bitcoin. Despite all of this, the adoption of a Bitcoin ETF marks a turning point for the crypto’s trajectory as well as for shifting attitudes and approaches throughout the massive crypto ecosystem.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.