Bitcoin trading has been a hot topic in 2023, driving much of traders’ attention and emerging as a solid option for the failing regulated system. A series of events that happened last year motivated entrepreneurs and corporations to increase their investments in virtual currencies.
Enlisting Bitcoin as tradable security in the spot ETF is a milestone that can bring positive and negative outcomes. However, traders believe that the SEC’s decision will cause a massive change in the crypto landscape after a stagnating crypto winter in 2022.
Let’s explain the importance of Bitcoin spot ETF trading and the expected changes in the market.
- Bitcoin ETF spot refers to trading BTC without holding the coin but relying on its price speculation.
- Spot Bitcoin ETF can be faster and safer than actually owning a digital asset within a regulated environment.
- Leading US investment and asset management firms applied to enlist spot BTC ETF trading. However, the SEC did not announce its decision yet.
Understanding Bitcoin Spot ETF
Crypto ETFs allow traders to invest in BTC and virtual currencies without actually owning the coin, which is a faster and safer way to capitalise on the massive volatility associated with the crypto market.
An exchange-traded fund (ETF) is a trading instrument that tracks the price of selected financial assets, whether a single product like the Bitcoin ETFs or a collection of products like index ETFs.
Buying and selling futures Bitcoin ETFs has been available since 2021 for European and American investors. However, an application was submitted recently for the Bitcoin spot ETF approval, which can boost the price of BTC and other digital currencies.
Bitcoin futures ETFs entail speculating on the potential price of BTC, where traders bet on the futuristic value of the cryptocurrency by netting the price difference between current and an agreed-upon price.
On the other hand, spot Bitcoin ETFs are instruments that actually include the virtual coin itself. Therefore, trading spot ETFs reflects more accurate prices, which can be similar to actually holding the coin.
Benefits of ETF Trading
ETFs provide a solid trading option that does not require the investor actually to hold and claim ownership of the underlying asset. Instead, investors trade on the price speculations and changes stemming from market movements and price action.
ETF traders track the price(s) of the included assets, which can combine multiple instruments from the same class, offering a low-risk portfolio diversification option. Additionally, trading on the price only without holding the asset shortens the processing time and mitigates unpredictable liquidity and supply changes.
Exchange-traded funds are considered less risky because they include a combination of assets with a collective price action that is less volatile than relying on a single tradable security.
Tracking The SEC Bitcoin Regulations
In 2023, the crypto market was busy with the Bitcoin ETF news and the SEC’s take on the submitted applications by leading investing firms. In fact, the first such application took place in 2013, but the US Securities and Exchange Commission has been rejecting these applications, requiring clearer frameworks and guidelines for virtual coins.
Gary Gensler, the chairman of the SEC, has been leading a strong campaign to regulate virtual coins, claiming that crypto markets are suffering from the lack of legal frameworks.
However, crypto communities objected to this push, especially because regulating digital assets is fundamentally against the notion of decentralised economies that regard shared control, transparency, and preserving user identity.
At the same time, regulated banks were not having the best times; with multiple US banks failing within the span of five days and skyrocketing interest rates, investors lost their faith in the centralised finance system.
By the summer of 2023, leading investment firms in the US filed an application with the SEC to enlist spot Bitcoin ETFs. This move comes after recent approval to trade Ethereum and Bitcoin futures ETF.
Corporations like BlackRock, Fidelity Investments and Invesco have a successful history of applying to the SEC, which boosted optimism about the Bitcoin ETF approval.
Events Affecting the Bitcoin ETF Approval
The US regulator is taking its time to announce its decision regarding these requests, which spreads some optimism about getting a positive answer. Moreover, the SEC usually communicates rejections shortly after an application is submitted.
It is still unknown whether the SEC approves ETF trading for Bitcoin. However, extending the decision time for months can be a sign of approval coming at the right time. With that being said, let’s take a look at the top events and factors that affect the SEC’s decision.
Regulated Banking System
In the spring of 2023, a series of bank failures happened to top US banks, including medium-sized financial institutions like Silicon Valley Bank and First Republic Bank. The collapse happened due to mismanaging assets and inefficient risk planning.
These events decreased the transparency and trust in US banks. Nevertheless, the Fed Reserve interest rates are gradually increasing, motivating many businesses to switch their investments away from regulated finances.
Eventually, the crypto market emerged as a solid alternative to classic financial instruments.
Bitcoin 2024 Halving Event
The next Bitcoin halving event is expected to take place in April 2024 as one of the key events in the BTC blockchain. During this event, the total supply of Bitcoin gets slashed to half, and the mining rewards are reduced by 50%.
The SEC could be waiting for this event to announce the Bitcoin ETF approval, which drives the Bitcoin halving 2024 prediction of a skyrocketing coin price.
As the supply level of BTC shrinks and the demand for spot ETF trading increases, the price of Bitcoin is expected to surge in 2024, possibly crossing previous price records.
Anticipated Crypto Bull Run
The Bitcoin halving predictions and Bitcoin spot ETFs approval are key catalysts for the next crypto bull run, which is expected to happen anytime in 2024 or towards 2025.
There are several reasons for the anticipated crypto boom, including the security developments introduced by Ethereum, investors’ willingness to increase their crypto holdings, rising interest rates and the massive recovery of most crypto tokens and coins.
These reasons fuel the next crypto bull market. However, the SEC’s decision can either overheat this surge or be timed differently to attain a stable growth rate.
Consequences of The Bitcoin Spot ETF Approval
Approving the BTC spot ETF trading can bring benefits and challenges to the financial market. Despite the potential advantages of market growth, further development of decentralised platforms and increased trust in digital currencies, there are possible downsides to this decision.
Enlisting the spot ETF trading will motivate individuals to engage in buying and selling Bitcoin without actually owning the coin; therefore, they will not actively participate in developing and growing the decentralised world.
Another risk of adopting BTC spot exchange-traded funds is tying the blockchain coin with management fees and regulations, which fundamentally contradicts how decentralised finance works. Therefore, crypto communities are expected to split on both sides of the spectrum.
Bitcoin spot ETF means allowing traders to buy and sell BTC without actually owning the coin as a faster and safer way to participate in the crypto market and capitalise on various opportunities to make money.
Major asset management and investment corporations in the US applied to legalise Bitcoin ETF spot trading, which can boost the crypto market, especially BTC, as more traders are willing to benefit from this growth.
However, the SEC has yet to make a decision on these applications, which splits investors into two sides. Finally, the outcomes of this decision are purely speculative as it can either contribute to a further market recovery or uncontrollably surge the market.