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Bitcoin ETFs can provide institutions with lower-cost investment channels, but for investors who are proficient in cryptocurrencies, ETFs may not be a good choice.
Original title: “Exchange ETF may bring great development to Bitcoin investment”
Written by: Telis Demos
Source: Wall Street Journal
The impact of exchange-traded funds (ETF) on the traditional investment industry has only become apparent for decades, but players in the cryptocurrency world may disrupt the traditional investment industry in a short period of time.
There is a growing sense in the market: Bitcoin ETFs may finally land in the United States in the near future. Gary Gensler, nominated by the US Securities and Exchange Commission, has taught cryptocurrency courses. In recent months, the Bitcoin market has grown substantially, and there are now some large institutions involved. Companies such as VanEck and Fidelity have re-applied to the regulatory authorities to start Bitcoin ETF business.
Gary Gensler, appointed chairman of the US Securities and Exchange Commission, has recently taught cryptocurrency courses, photo source: jose luis magaua
There are already signs that there is a huge potential demand in the market. The Purpose Bitcoin ETF listed in Toronto is the first Bitcoin ETF in North America. Since its launch in February, it has accumulated approximately $1 billion in assets. At the same time, Grayscale Bitcoin Trust last week reiterated its long-standing intention to seek to convert publicly traded Bitcoin funds into ETFs.
For a long time before, the price of Grayscale Bitcoin Trust units had a significant premium over the net asset value of its bitcoin holdings, but the recent price was lower than that net value. Many analysts believe that this is partly due to the emergence of Bitcoin ETF.
One advantage of ETF is that it can deal with any discount or premium by creating and redeeming shares at any time, which can greatly enhance its attractiveness. The transaction costs of ETFs are also lower, which will put pressure on the fees of the entire Bitcoin ecosystem.
Michael Sonnenshein, CEO of Grayscale Investments, said: “You almost have to treat the current expenses as a friction between the traditional financial system and the crypto ecosystem.” He said: “You will see that as the system connects more smoothly… … the cost will come down.”
Grayscale manages approximately $34 billion in assets. If the company converts publicly traded Bitcoin funds into ETFs, the company will become the second largest U.S. commodity ETF after SPDR Gold Trust and will take action to reduce the current cost.
Bitcoin’s volatility limits its ability as a payment currency, so a group of entrepreneurs have created so-called stablecoins, which are cryptocurrencies linked to assets such as the U.S. dollar or gold. In the past year, the market value of stablecoins has exploded. However, the most popular stablecoin USDT (USDT) was exposed in a scandal. Its issuer Tether was accused of making false statements on the issue of reserve assets. Recently, it reached a settlement after being investigated by New York prosecutors. This incident highlights the risks that investors do not understand in the stablecoin field, and the urgent need to become more transparent.
Nowadays, many small investors also invest in Bitcoin through digital wallets. For example, in Coinbase Global, the company’s largest source of income is retail transactions. For some investors who are proficient in cryptocurrency, ETF may not be a good substitute. At present, the target of Bitcoin ETF is Bitcoin, and many wallets offer a variety of cryptocurrency options, and the number of varieties is constantly increasing. This kind of wallet can also realize activities such as using cryptocurrency as collateral for borrowing, using cryptocurrency to pay and generating income. However, for many investors who just want to catch a ride on Bitcoin’s rise at the lowest cost, these may not be a big problem in relative terms.
Currently, Coinbase’s growth shows no signs of slowing down. Before going public this week, the company reported that it added 13 million verified users in the first quarter of 2021, bringing the total number to 56 million, more than the number of users added throughout 2020.
If the Bitcoin ETF is approved, it may bring a lot of business growth. Matt Hougan, chief investment officer of Bitwise Asset Management, said that in addition to opening the door to ordinary investors, ETFs may also make it easier for more financial advisors to provide customers with bitcoin allocations. The company manages more than $1 billion in cryptocurrency funds and has sought to launch cryptocurrency ETFs.
Hougan said: “ETF may bring a new batch of capital to the market.”
For investors who invest in any cryptocurrency investment company now, they should all take into account the very different market patterns that may emerge in the next few years.
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