What is a Spot Bitcoin ETF?

If you are interested in Bitcoin at all and have been online at some point in the last few weeks, you must have come across the words: ‘Spot Bitcoin ETF’. It’s everywhere right now, and is all Bitcoiners can talk about. Did you wonder what it all meant? Well, let’s break it down so you can better understand.

What is an ETF?

ETF stands for Exchange Traded Fund. Think of these financial products as convenient pre-made baskets of investments that you can trade easily on the stock market. For example, instead of trying to pick one or two winning stocks and investing in those, you could buy an ETF basket filled with different stocks instead. ETFs these days can be almost anything. The basket could be filled with stocks, bonds, commodities, or even other ETFs.  

The History of ETFs

The first ETF appeared in 1990 in Canada. After that, came SPDR S&P 500 ETF (SPY) in the United States in 1993. Since that time ETFs have exploded in popularity and in the range of investments they provide for people. Some of the other more well known ETFs are:

• Vanguard Total Stock Market ETF (VTI): This ETF tracks the entire US stock market, including large, medium, and small-cap stocks.

• Invesco QQQ Trust (QQQ): This ETF tracks the Nasdaq-100 index, which includes 100 of the largest non-financial companies listed on the Nasdaq stock exchange.

• Vanguard Total Bond Market ETF (BND): This ETF tracks the US bond market, including government, corporate, and taxable municipal bonds.

The History of Bitcoin ETFs

Way back in 2013 the first Bitcoin ETFs were proposed so that everyone would be able to invest in Bitcoin easily. Unfortunately, in the United States, the SEC ( Securities and Exchange Commission) has been denying these proposals for the last 10 years. It has been a different story in other countries though. Canada became the first country to approve a Bitcoin ETF, the Purpose Bitcoin ETF (BTCC) in 2015, followed by South Korea and Sweden in 2017. Currently there are dozens of Bitcoin ETFs available around the world, outside of the United States.

However, that changed when the SEC approved the ProShares Bitcoin Strategy ETF (BITO) in 2021, which was the first US Bitcoin futures ETF.

Spot ETF vs Futures ETFs

While the Bitcoin futures ETF was popular, it is not seen as a good investment product for those who are not expert traders. Trading in Futures is like betting on the future price of Bitcoin rather than actually investing in Bitcoin. In fact, Bitcoin Futures ETFs don’t actually hold any Bitcoin at all.

Spot Bitcoin ETFs allow people to have exposure to Bitcoin at the current market price because the ETF will track the real-time price and change as the price of Bitcoin changes.  So people can get exposure to Bitcoin without having to learn how to buy Bitcoin on an exchange.

Will there be a Spot Bitcoin ETF?

There are already spot Bitcoin ETFs in Canada, Germany and Australia but the excitement you  may be seeing on social media is about these ETFs happening in the United States. Right now eleven different companies have applied for spot Bitcoin ETFs, and for the past month there have been updates coming out describing positive progress. Now, most experts believe that all, or most, of these will be approved next week.

Why is this so Exciting?

The US financial market is the largest in the world. Therefore the approval of a Bitcoin ETF in the United States would attract significantly more money compared to other countries. As well as that, the United States has a large base of investors in terms of hedge funds and pension funds that could also be very interested in Bitcoin. Potentially they are just waiting for the SEC to provide a green light. Both of these factors could potentially drive up the price of Bitcoin.

For a better idea of why this Bitcoin ETF is so exciting, check out our article entitled: 7 Reasons Why Everyone is so Excited about a Bitcoin ETF?