The cryptocurrency world is abuzz with anticipation as the US regulators reconsider approving a groundbreaking financial product: Spot Bitcoin ETFs. These Exchange-Traded Funds are seen by many as potential game-changers, capable of disrupting the status quo dominated by futures-based crypto funds. With big players like BlackRock Inc. and Grayscale Investments leading the charge, the stage is set for a seismic shift in the crypto investment landscape.
The Impending Disruption
Traditional cryptocurrency funds, primarily reliant on Bitcoin futures contracts, took the market by storm when they debuted in October 2021. However, their initial euphoria was short-lived, and their combined market value currently hovers around the $1 billion mark. Enter Spot Bitcoin ETFs, a new breed of investment products that could potentially threaten the existence of their futures-based counterparts.
Spot ETFs: A Closer Look
Spot Bitcoin ETFs aim to mirror the real-time price movements of the cryptocurrency, offering investors a more direct and cost-effective route to crypto exposure. Analysts suggest that these ETFs could become the preferred choice for a wide range of investors, particularly those with a long-term investment horizon.
The $100 Billion Potential
According to estimates from Bloomberg Intelligence, if approved, the US spot Bitcoin ETF market could swell to an astonishing $100 billion over time. This growth projection underscores the immense appeal and potential market dominance of spot-based ETFs.
Performance Gap: Futures Vs Spot
The underperformance of Bitcoin-futures ETFs in comparison to the actual cryptocurrency has raised eyebrows among investors. The disparity can be attributed to the specific futures contracts these ETFs hold and the associated rolling costs. These expenses erode returns, leading to a performance disconnect from the underlying asset.
The Exodus of Funds
Industry experts predict that if spot-based ETFs gain regulatory approval, futures-based counterparts might witness significant outflows based on the report. Spot ETFs, being more aligned with real-time supply and demand dynamics, could siphon away trading activity and liquidity from the futures markets.
Lower Fees and Fierce Competition
In the competitive world of Exchange-Traded Funds, lower fees often prove to be a decisive factor. Spot ETFs are expected to engage in fee wars, offering investors more cost-effective options compared to their futures-based counterparts. This fee competition could intensify if multiple spot ETFs enter the market simultaneously.
Investors, when presented with a choice between spot and futures ETFs, are likely to gravitate towards the former, especially for non-leveraged or non-inverse products. The lower fees associated with spot ETFs could emerge as a key differentiator in a market flooded with options.
The impending influx of Spot Bitcoin ETFs in the US, with the potential to grow into a $100 billion market, is poised to reshape the cryptocurrency investment landscape. These ETFs promise lower fees, more accurate tracking of Bitcoin’s price, and increased efficiency.
While traditional futures-based ETFs may continue to have a role in the crypto market, the rise of spot-based ETFs could very well mark a turning point, attracting a new wave of investors and reshuffling the status quo.
Giancarlo is an economist by profession with a career spanning nearly two decades. His professional journey has seen him assume vital roles in various government and private organizations such as the Department of the Interior and Local Government (DILG), the National Economic and Development Authority (NEDA), Megaworld Corporation, and the China Banking Corporation in the Republic of the Philippines.
In addition to his civic and corporate pursuits, his forward-thinking approach has led him to manage several prominent websites in the banking and finance sector, notably the Australia-based RateChoice, where he immersed himself in the world of emerging financial technologies and where he found particular interest in Bitcoin all the way back to 2013.
Prior to his addition to Blockzeit’s dynamic team, he held an essential role as Project Manager for initiatives encompassing blockchain, stablecoin, mining, special economic zone development, and iGaming. This noteworthy chapter in his career unfolded under the auspices of InPlan Consultancy Services, Inc., the think-tank of IMPERO Consortium Management Corporation headquartered in Manila, Philippines, and Tokyo, Japan. InPlan, led by a distinguished retired Cabinet member of the Philippines, collaborates directly with IMPERO’s core management team, contributing to strategic planning and business development endeavors.