The Challenges of Launching The World’s First Bitcoin-based ETF
Why this development is considered important and what it can mean for the course of the price.
If you follow the developments in cryptocurrencies for some time, the news from traditional markets seems to move in slow motion. Traditional banking is in danger of ending up like the newspapers that the internet swallowed before they realized what was happening. And many are not happy with that at all.
The companies that operate in blockchain and crypto are preparing many pleasant surprises. The category of people who triumph is the one who constantly seeks to learn and has ambitions. We may be at a time when financial and technology giants are giving way to automated applications that use decentralized, open-source software.
Wall Street Entrance
When Michael Saylor made the first bold move by listed companies in August to convert all of his company’s assets to Bitcoin, Wall Street thought he was crazy. Just six months later, thousands of business and institutional executives flocked to his event to learn how he did it. How to deal with legal, regulatory, and accounting peculiarities. Are you saying that some people have not started the process?
What price is considered ridiculously high for Bitcoin? None, judging by its history. When it did not even have a price, $ 100 looks outrageous. Then $ 1,000 was considered an unthinkable number. Later, the 10,000, science fiction. Today, even big companies are talking about amounts of 100,000 dollars while there are also forecasts for 1,000,000 dollars.
Optimists say a tsunami of cash is brewing. Some had thought of it as a possibility, but few believed it a few years ago. With this view behind Elon Musk and his move to convert some of Tesla’s holdings into Bitcoin, there will be pressure from shareholders of other listed companies to do something to protect themselves from the potential risk of inflation. To diversify their portfolio of cash and cash equivalents. The idea that there is a greater risk of not having even the smallest amount of your cash in Bitcoin is now the “dominant narrative”.
An interesting new aspect of Bitcoin is that it allows people who own it to use it as collateral. A recent example is Microstrategy, which announced that it will issue bonds with a 0% interest rate, convertible into shares or cash at maturity. The company’s original plans were to issue 600 million in order to make new Bitcoin purchases, but seeing the increased interest, they raised it to 900 million. Bitcoin is not only a shield to protect the purchasing power, but also creates unique financing options.
The First Bitcoin ETFs
The first Bitcoin Exchange Traded Fund (ETF)* in North America, officially licensed in Canada by a company named Accelerate Financial. The Ontario Securities and Exchange Commission gave the green light and started trading on February 18. The fund will offer shares in both US dollars and Canadian dollars, with a management fee of 0.7%.
Bloomberg reporter Eric Balchunas wrote on Twitter that Purpose Bitcoin (BTCC) had exceeded expectations and that if it continued at this rate, it would be the largest ETF in Canada in 20 days, as it had already raised nearly half a billion dollars.
But the surprises do not end here. According to the same journalist, the BTCC was the ETF with the largest trading volume on the Canadian stock exchange from day one. I have never seen it before, says Eric Balchunas, who specializes in ETFs! As he explained, it would be like an ETF trading more than SPY on its first day. And that only applies to transactions in the Canadian dollar. US currency traded 11th in trading volume.
But it is not the only one! This month, Canada approved a second Bitcoin ETF, from Evolve company, (EBIT). And we do not stop here! A third is expected soon from CI Financial, which filed a prospectus for its own ETF Bitcoin.
Why is the issue of ETFs so crucial? For many, private but mostly institutional, it was difficult to get exposure to Bitcoin due to its security features. ETFs provide a simple and effective way to access the unknown world of cryptocurrencies. They allow investors to have exposure to digital assets without necessarily buying or owning them. Since ETFs can be traded freely on traditional stock exchanges, their holders can indirectly invest in Bitcoin or other cryptocurrencies.
So their impact on the market has two parts. First, it requires the purchase of significant quantities of cryptocurrencies in return, with the result that the effect on demand is instantaneous. However, even more important is that it will bring in contact with a lot of people who until today either ignore cryptocurrencies or do not trust them.
How can we be sure? Are there similar examples in the past? Yes, we have. Since the gold ETF began trading in March 2003, gold has increased fivefold in less than 10 years. It may be because it was now very easy and without transaction and storage costs to obtain, even in small quantities. Of course, it can be a simple coincidence. Anyway, the confirmation of the predictions is expected to be solved much faster than we thought.
Important move from Canada, but the question is what they will do in the US. At present, the US Securities and Exchange Commission has not approved an ETF in Bitcoin. The closest to this is the Grayscale fund, which charges higher management costs and mainly trades with a high premium. However, if Canada’s ETFs continue to be successful, it is reasonable to expect that this will encourage US regulators to reconsider.
*ETFs are mutual funds, which are traded during the session as a regular share.
P.S This article is not an incentive to buy or sell the listed securities. Provided for informational purposes only.
