Spot Bitcoin ETF: A paradigm shift in the world of cryptos?

After a long wait, US markets regulator Securities and Exchange Commission (SEC) finally gave a go-ahead to the spot bitcoin ETFs on Wednesday, a move that led to a massive jump in the bitcoin prices.

Bitcoin was trading around $46,954 at 4.45 pm, up 2.9 percent in the past 24 hours, shows CoinDeskdata. In the early hours of Wednesday, bitcoin price had topped $47,000 before paring some of the gains.

In fact, considerable gains have already been incorporated in anticipation of the move. The bitcoin surged nearly 6 percent since October on speculation that the spot bitcoin ETF would get the final approval in the early days of January.

This move is expected to widen the cryptocurrency’s reach and popularity among investors. After the spot ETF approval, there could be an inflow of $3 billion in just one day and as much as $55 billion in the next five years, one Reuters report had claimed.

Let us understand what exactly is this and how relevant it would be for crypto prices in the near and medium-term future:

What is a spot bitcoin ETF?

A spot bitcoin ETF refers to an investment instrument which can invest directly in bitcoin rather than in its futures contracts.

This would enable investors to get direct exposure to bitcoins rather than through derivative contracts. So, a spot ETF would own actual bitcoins, which will lead to higher transparency in the crypto transactions, and obviously greater stability of crypto prices.

Notably, SEC has rejected all such applications seeking approval for spot bitcoin ETF in the past 10 years but the speculations were rife that the approval would come at the start of calendar year 2024.

RBI not impressed

Meanwhile in India, Reserve Bank of India (RBI) Governor Shaktikanta Das reiterated that banking regulator’s stance continues to be the same.

“The RBI’s position on cryptocurrency remains unchanged. Travelling down that path will create huge risks. I don’t think the world or emerging markets (EMs) can take a crypto mania like the Tulip mania,” Governor Das said during Mint’s BFSI Summit.

Industry’s thumbs-up

The crypto industry representatives are quite enthused with this move as it is likely to inject further optimism, and importantly – more investment into cryptocurrencies.

“The crypto industry has experienced a remarkable journey, marked by resilience and growth, and SEC’s approval for Spot Bitcoin ETFs further adds optimism. The readiness of the sector to list these ETFs and the commitment of the broader market to continue the growth momentum, highlight the industry’s confidence in regulatory decisions,” says Rahul Pagidipati, CEO, ZebPay.

Mridul Gupta, COO, CoinDCX, echoes similar sentiment, “We will see a huge inflow of institutional money in crypto via ETFs and first institutional bull market. A spot bitcoin ETF is poised to streamline exposure for traditional players, unlocking trillions in institutional capital. Furthermore, it has the potential to simplify Bitcoin transactions for retail investors, allowing them to seamlessly buy and sell Bitcoin through their traditional brokerage accounts.”

At the same time, Ashish Singhal, Co-founder and Group CEO, PeepalCo, called the move “historic” that will bring a “monumental shift” in a post on X platform.

“The US SEC approval of Bitcoin ETF marks a monumental shift in the financial world. It’s a watershed moment for crypto and will bring in a new wave of investors. Now, even the most cautious funds and the titans of Wall Street can tap into Bitcoin’s potential. An ETF will be the simplest form of Bitcoin exposure for retail users. Investors can seamlessly benefit from Bitcoin price movements without the complexities of digital wallets or drastic investment strategy overhauls,” he wrote.

Gaurav Mehta, Co-Founder & CEO of Catax- Simple Crypto Taxes, calls this move a game-changer. “I see several key implications. Firstly, this approval signifies a growing acceptance of cryptocurrencies within the traditional financial sector. Secondly, the ETF structure provides a level of security and oversight that can attract risk-averse investors, potentially leading to increased mainstream adoption. Lastly, the decision paves the way for more diversified portfolios, as investors can now easily gain exposure to Bitcoin through established brokerage platforms,” he said.

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