What are ETFs?

Before discussing cryptocurrency ETFs, we must first understand what ETFs are. The full name of ETF is Exchange Traded Fund, which translates to exchange-traded funds. ETFs are essentially open-ended securities investment funds, which have the following significant advantages and characteristics:

• Risk diversification: ETFs contain a variety of assets, which can diversify investment risks and reduce the risk of individual asset fluctuations.

• Flexibility: It can be traded directly on the stock exchange and has high liquidity, making investment more flexible and convenient.

• Low threshold: The investment threshold is low, and transaction and management fees are also low, making it very suitable for individual investors.

Simply put, ETFs can make users operate more easily, without having to apply for and redeem through fund companies. Therefore, all fees and costs are lower, providing a more convenient investment channel for individual investors.

If distinguished by investment targets, currently common ETFs in the Taiwan market include:

• Stock ETFs: ETFs that track stock indexes and industries, such as Yuanta Taiwan 50, Yuanta FTSE Real Estate, etc.

• Bond ETFs: ETFs that track bond indexes, such as Yuanta 15-Year+ Grade A Corporate Bond ETF.

• Commodity ETFs: track commodity indexes, such as gold ETFs, silver ETFs, etc.

• Currency ETFs: ETFs that track changes in currency exchange rates of various countries, such as the Yuanta USD Currency ETF.

ETFs that track cryptocurrency price changes are the focus of this article.

Cryptocurrency, Bitcoin and Ethereum ETFs?

Cryptocurrency ETFs mainly use single currency or multiple cryptocurrency assets as investment portfolios.

Cryptocurrency ETFs allow investors to purchase fund shares with the purpose of capturing the value of a specified cryptocurrency or tracking a cryptocurrency market index.

However, according to a report by the cryptocurrency data website CoinGecko, the current global cryptocurrency ETFs are mainly concentrated in Bitcoin and Ethereum.

These cryptocurrency ETFs allow investors to track and invest funds into BTC or ETH, giving investors a way to gain cryptocurrency investment without directly purchasing and storing cryptocurrencies.

Cryptocurrency ETF Advantages

We mentioned earlier the benefits that ETFs bring to investors as a whole, but cryptocurrency ETFs are a relatively new field. What are the benefits compared to investors who directly hold cryptocurrency? The main ones are as follows:

• Operated by a professional fund management team: Investors do not need to worry about crypto asset custody risks.

• Lowering the technical threshold: Investors do not need to learn how to operate a cryptocurrency wallet.

• Time-saving and convenient: Investing through cryptocurrency ETFs makes trading simple and efficient, suitable for any type of investor.

• More compliant: ETFs are subject to strict supervision and legal protection, with controllable risks and compliant operations.

• Diversification of asset risks: In addition to the common single Bitcoin or Ethereum ETFs, there is also the concept of packaging multiple cryptocurrencies on the market, allowing investors to achieve a diversified investment portfolio.

Cryptocurrency ETF Disadvantages and Risks

Compared with common ETFs, cryptocurrency ETFs are still in the early stages of development, so they also have certain risks and shortcomings. For example:

• Volatility: Compared with other common ETF investment products, the volatility of cryptocurrency assets is more intense.

• Security: Cryptocurrency hacking incidents are common. If these platforms are attacked by hackers or have problems, and if there are problems with related storage platforms and services, asset losses will occur.

The most important point is that ETF violates decentralization. ETF itself is a product of centralization. If you use ETF to invest, investors will not be able to transfer freely like on-chain operations. At the same time, your assets will be transferred by the fund. There is a popular saying in the currency circle:

「Not your Keys，Not your Coin」

If the vast majority of people use ETFs to invest in cryptocurrencies, doesn’t that violate the essence of the birth of cryptocurrencies?

Why is the passage of a U.S. Bitcoin spot ETF so important?

Why is the U.S. Bitcoin ETF so anticipated? The main reason is the importance of the U.S. stock market.

Data shows that the U.S. stock market accounts for nearly 42% of the worlds total market capitalization. Compared with other countries that have launched cryptocurrency ETFs, such as Canada, Brazil, and European markets, its market capitalization is very different.

Image Source:https://www.visualcapitalist.com/the-109-trillion-global-stock-market-in-one-chart/

If the United States, the most populous and economically powerful country, launches a Bitcoin ETF, it will have a major positive impact on the global cryptocurrency market, and its influence will not be limited to the United States.

In 2021, the United States has approved Bitcoin ETF futures products, making the market very excited to expect that spot ETFs will also be allowed to pass. However, spot ETF applications submitted by various institutions continue to be rejected by the SEC, leaving everyone somewhat disappointed.

However, according to the latest news, the recent launch of the Bitcoin and Ethereum Composite Futures ETF by the asset management company Valkyrie has been officially approved by the SEC and officially started trading on Nasdaq on 10/3. To some extent, this may mean that Ethereum’s futures ETFs will have the opportunity to be successively reviewed and approved, and it also increases the SEC’s chance of success in releasing Bitcoin spot ETFs.

What is the difference between spot and futures ETFs?

As mentioned above, the U.S. Bitcoin futures ETF has been approved, but why do everyone expect the spot ETF to be approved? Here we take Bitcoin as an example:

Bitcoin Spot ETF

Bitcoin spot ETF is a product issued by a fund company that actually holds Bitcoin.

When investors purchase Bitcoin spot ETFs, they are equivalent to holding Bitcoin indirectly through ETF funds. The fund company needs to use the purchased funds to purchase an equivalent amount of Bitcoin as a cover to support the issuance of ETF contributions.

Bitcoin Futures ETF

In contrast, Bitcoin ETF futures do not require the purchase of any physical Bitcoin. It uses Bitcoin futures contracts to simulate Bitcoin prices. Futures ETFs will not affect the Bitcoin price and quantity in the spot market. It is a financial derivative instrument designed to track the value of Bitcoin.

The core difference between the two is that spot ETFs will have an impact on the actual market supply and demand of Bitcoin, while futures ETFs will have a relatively low impact.

Therefore, the launch of Bitcoin spot ETF will promote the development of Bitcoin as a new asset class and have a greater chance of pushing up its price.

This is why cryptocurrency investors have been looking forward to the US SEC speeding up the approval of Bitcoin spot ETFs. Its impact on Bitcoin itself and the cryptocurrency market as a whole is far more immediate.

As mentioned in the above article, the SEC currently only approves Bitcoin futures ETFs and rejects spot ETF applications from all institutions. But based on recent developments, hopes are growing that a Bitcoin spot ETF will receive final approval. Its launch will be a big piece of good news for the crypto market.

Popular Cryptocurrency ETFs in the Market

As of now, there are no cryptocurrency ETF products in Taiwan. Taiwanese users still have to make related investments by actually buying and selling cryptocurrencies. The following introduces the currently popular overseas cryptocurrency ETF products.

ProShares Bitcoin Strategy ETF (Bitcoin Strategy Active ETF)

The first Bitcoin futures ETF launched in the United States

• Assets under management: $1.09 billion

• Rate: 0.95%

• Code name: BITO

Amplify Transformational Data Sharing ETF (Amplify Transformational Data Sharing Active ETF)

• Assets under management: approximately $500 million

• Rate: 0.75%

• Codename: BLOK

Bitwise Crypto Industry Innovators ETF (Bitwise Crypto Industry Innovators ETF)

• Assets under management: approximately US$80 million

• Rate: 0.85%

• Code name: BITQ

Global X Blockchain Bitcoin Strategy ETF (Global X Blockchain Bitcoin Strategy Active ETF)

• Assets under management: Approximately $11 million

• Rate: 0.65%

• Codename: BITS

First Trust Indxx Innovative Transaction Process ETF (First Trust Indxx Innovative Transaction Process ETF)

• Assets under management: approximately $107 million

• Rate: 0.65%

• Code name: LEGR

Companies with potential to trade through U.S. spot ETFs

In addition to the cryptocurrency ETFs that have been launched, what everyone in the market is currently paying most attention to is who can pass the Bitcoin spot ETF in the United States. The following are related companies with potential in the market.

Image Source:beincryptoBlackRock (BlackRock)

BlackRock is the worlds largest asset management company, with total assets under management exceeding US$9 trillion as of the second quarter of this year.

In addition, according to BlackRocks record of numerous encounters with the SEC in the past, a total of 575 ETFs have been approved, and only one was rejected in 2014. It has a very high winning rate and is currently the most promising Bitcoin spot ETF application. company.

Wisdom Tree

The New York-based asset management company began applying for a Bitcoin spot ETF in 2021, but was repeatedly rejected. Recently, it applied again after BlackRock submitted an ETF application.

ARK Invest (ARK Fund)

An investment company led by well-known cryptocurrency investor Cathie Wood (commonly known as Wood Sister), who is a Bitcoin believer, and her investment scope includes CoinBase, GrayScale, etc.

Ark Invest submitted an application for the Ark 21 Shares ETF in June 2021, which was subsequently rejected, and is currently making a third application after revising the documents.

Grayscale

Grayscale is a New York-based cryptocurrency investment fund management company and an early traditional financial institution entering the currency market.

However, GBTC, the product launched by Grayscale for Bitcoin, is a type of trust, not an ETF, so Grayscale plans to apply to convert its BTC trust into a Bitcoin spot ETF.

If the application is successful, Grayscale will be able to charge lower management fees and make it easier to get funds in and out.

in conclusion

As of October so far, the U.S. SEC has not approved any application for a Bitcoin spot ETF and has continued to postpone it.

However, according to the recent postponement information, the SEC has not completely rejected the application, but has begun to seek comments and opinions from relevant parties. Coupled with the recent passage of the Ethereum futures ETF and BlackRock’s application, many people believe that Bitcoin spot The date for the adoption of ETF is getting closer, and it is expected to be officially launched this year or next year.

As mentioned earlier in the article, the U.S. stock market accounts for about 40% of the worlds share. If the U.S. Bitcoin spot ETF is officially passed, it will have the opportunity to have a significant impact on the existing cryptocurrency market.