A Bitcoin ETF, which tracks the price of Bitcoin, has recently been approved by the US Securities and Exchange Commission (SEC). The move is being considered a game-changer for the cryptocurrency industry which has been trying for over a decade to launch such a product. The US SEC approved 11 spot Bitcoin ETFs, including BlackRock’s iShares Bitcoin Trust, Grayscale Bitcoin Trust, and ARK 21Shares Bitcoin ETF.

Here’s what you need to know about Bitcoin ETFs and how you can invest.

What are Bitcoin ETFs?

Bitcoin ETFs or exchange-traded funds are financial instruments that track the Bitcoin benchmark. The value of a Bitcoin ETF changes in line with changes in the price of Bitcoin. Their assets will include physical Bitcoins purchased from crypto exchanges and held through a custodian like Coinbase Global.

The Bitcoin ETF will be listed on Nasdaq, NYSE and CBOE.

Shares worth $4.6 billion changed hands across all products on the first day of trading on Jan. 12, according to LSEG data.

bitcoin etf vs bitcoin

Yes. Spot Bitcoin ETFs allow investors to gain exposure to the price of Bitcoin without the complexities and risks of owning Bitcoin directly. These include setting up accounts with crypto wallets and crypto exchanges, some of which have poor cybersecurity records and are prone to hacks.

The industry has also experienced a series of bankruptcies and scandals, including the implosion of crypto exchange FTX, whose founder Sam Bankman-Fried was found guilty of fraud.

Other exchanges have been accused of violating US securities laws, while Binance, the world’s largest crypto exchange, recently pleaded guilty to breaking US anti-money laundering laws. All this is making many investors cautious.

In contrast, ETFs are listed on strictly regulated stock exchanges and are therefore accessible through retail investors’ existing brokerage accounts, which are also closely monitored.

The ETF structure also increases Bitcoin’s accessibility to institutional investors, some of whom have been barred from investing directly in alternative assets.

Bitcoin ETF: Can Indians Invest?

Under the RBI Liberalized Remittance Scheme, Indian individuals are allowed to send a maximum of $250,000 to a foreign country in a year.

Veram Shah, chief executive officer of Vested Finance, said that for Indian investors, the Bitcoin ETF will provide an opportunity to include the crypto in their portfolio through the Liberalized Remittance Scheme (LRS) route.

He also said that Indian investors taking exposure on Bitcoin ETFs will get easy exposure through regulated institutions without having to worry about storing the cryptocurrency.

Issuers plan to charge fees ranging from 0.20 percent to 0.8 percent, which is significantly lower than the broader ETF market average.

Safeguards against price manipulation in Bitcoin ETFs

To address manipulation concerns, Nasdaq and CBOE have created a market surveillance mechanism with Coinbase, the largest US cryptocurrency exchange.

Bitcoin ETF: History

Several asset managers have applied for a Bitcoin ETF since 2013, but the SEC rejected them on the grounds that they would be vulnerable to market manipulation. However, in August, a court found that the SEC was wrong to reject Grayscale Investments’ Bitcoin ETF application, forcing the agency to reconsider its stance.

The SEC approved a Bitcoin futures ETF in 2021, which tracks agreements to buy or sell Bitcoin at a pre-agreed price. But they don’t accurately track product price movements, and the cost of carrying futures contracts can eat into returns, making them less desirable for many investors.

On Wednesday, the SEC approved applications from ARK Investments, BlackRock and Fidelity, among others.

Bitcoin ETF approved by US SEC: What does it mean?

For the crypto industry, the Spot Bitcoin ETF is a huge win, boosting the legitimacy of the cryptocurrency industry and pushing Bitcoin further into the mainstream.

It also comes amid a broader tug-of-war between the crypto industry and the SEC, which is cracking down on the sector. When it comes to this particular battle, the industry can claim victory.

(with inputs from agencies)