Course Content
Bitcoin ETFs Explained
Bitcoin is solidifying itself as a legitimate investment asset that anyone can invest in. Well, technically not anyone, as some institutions and individuals can only participate in a highly regulated manner. Many think a Bitcoin ETF could fulfill this purpose. Bitcoin ETFs already exist in Canada and the US, helping cryptocurrencies increase their mainstream adoption with investors. Let’s see what an ETF is and what it could mean for Bitcoin.
Bitcoin ETFs Explained
About Lesson

Well, Bitcoin isn’t the easiest asset to deal with. Custody, for example, can cause some serious headaches for a large institution. After all, Goldman Sachs won’t just plug a hardware wallet into a laptop and YOLO (transfer) $2B of Bitcoin on it. Large financial institutions don’t operate in the same way as individual investors, and they need a complex regulatory framework and financial plumbing to be able to participate in this space.

This is why an ETF can go a long way to bring adoption and expand the potential investor base. It can give price exposure for participants in the traditional markets without them having to worry about all the nitty-gritty of physically owning the coins.

A Bitcoin ETF could also hold assets other than Bitcoin. For example, a Bitcoin ETF could hold a basket of assets, like Bitcoin, Ethereum, Tesla stock, gold, and so on. This could provide some diversification benefits to investors.

A brief overview of Bitcoin ETFs

Generally, when people talk about Bitcoin ETFs, they’re usually talking about ETFs on the US markets. However, ETFs exist in many different markets. For example, the first Bitcoin ETF was launched on the Canadian stock market. It’s called the Purpose Bitcoin ETF and trades on the Toronto Stock Exchange with the ticker BTCC.

Even so, most eyes were on US regulators and whether they would allow for a US Bitcoin ETF. Finally, in October 2021, the SEC accepted an application to list the ProShares Bitcoin Strategy ETF (BITO) on the New York Stock Exchange (NYSE). 

Historically, most applications had been rejected due to volatility, the unregulated nature of the Bitcoin markets, and their apparent liability to market manipulation. While these issues may be true to some extent, it’s probably also true for many other financial markets that already have ETFs.

Much of the financial plumbing required for Bitcoin to be a legitimate macro asset class has been built in the last bear market. If MicroStrategy wanted to buy billions worth of Bitcoin just a few years ago, it probably would have been exceedingly difficult to do so. Now, however, both the infrastructure and the liquidity are there and ready to fulfill even such sizable investments.

This ongoing maturation of the Bitcoin markets likely turned the tides for the regulators and eventually gave way to the US Bitcoin ETF we see today.