In this episode of Yahoo Finance Future Focus, our host Brian McGleenon explains what a bitcoin spot ETF is and how it's different from other investments. Spot bitcoin exchange-traded funds (ETFs) have emerged as a transformative tool in the cryptocurrency market, offering investors an easy means to gain exposure to bitcoin price movements. Unlike derivatives-based ETFs, spot bitcoin ETFs invest directly in bitcoin, reflecting its current price. Since each ETF share corresponds to a specific amount of bitcoins held in reserve, these funds provide a regulated and secure gateway for individual and institutional investors to participate in the cryptocurrency market. The recent approval of several bitcoin spot ETFs by the US Securities and Exchange Commission (SEC) in January has fueled a notable rise in the price of bitcoin. Rising inflows from major fund managers such as BlackRock and Franklin Templeton have further fueled bitcoin's rally, highlighting the growing importance of bitcoin spot ETFs in shaping the cryptocurrency landscape.
Video transcript
BRIAN MCGLEENON: Welcome to Future Focus of "Yahoo Finance". Now, the price of Bitcoin has recovered since the approval of multiple Bitcoin spot exchange-traded funds or ETFs by the US Securities and Exchange Commission in January. But what exactly is a Bitcoin spot ETF? And why has it caused the price of Bitcoin to skyrocket?
Therefore, Bitcoin spot ETFs work very similarly to traditional ETFs. But instead of tracking a basket of stocks, for example, Bitcoin spot ETFs track the current price of Bitcoin. Now, each ETF share sold corresponds to an equivalent amount of real Bitcoin held in reserve.
There are currently 11 Bitcoin spot ETFs offered by fund managers such as BlackRock, Fidelity, and Franklin Templeton. Now, these managers work with authorized participants who purchase Bitcoin for the ETF. Custodians, such as Coinbase, then store the purchased Bitcoin in digital wallets.
Each ETF issued shares representing the purchased Bitcoin, which are matched to the current spot price of the underlying asset. These stocks can now be bought and sold on traditional stock exchanges, making it easier for both regular investors and large institutions to invest in Bitcoin without owning it directly.
For example, BlackRock's iShares Bitcoin Trust ETF is listed on the NASDAQ. While Fidelity's Fidelity Wise Origin Bitcoin BTC fund is listed on the New York Stock Exchange. This setup allows investors to gain exposure to Bitcoin without needing to directly manage digital wallets or store private keys, which can be complex and risky for some investors.
Now, all of these dynamics have had an effect on the price of Bitcoin since the approval of ETFs by the SEC in January of this year. In the short term, the rise in institutional investment through spot ETFs has boosted demand for Bitcoin, leading to price appreciation for the digital asset.
The recent approval of Bitcoin spot ETFs by the SEC also marked a shift in how regulators view cryptocurrencies and gave a certain level of legitimacy to Bitcoin as an asset class and greater liquidity in the market. of Bitcoin in general.
Now, the UK's financial regulator, the Financial Conduct Authority, appears to be following in the wake of its US counterpart after making a recent statement that it intends to allow exchange-traded notes or ETNs backed by Bitcoin, specifically, for professional investors.
However, it is always essential to keep in mind that investing in Bitcoin and spot ETFs comes with its risks. Investors should be cautious and aware of the volatility associated with Bitcoin. Additionally, investors do not actually take custody of Bitcoin when investing in spot ETFs. Instead, they depend on external custodians. And, as always, investors should exercise caution and consider their risk tolerance before investing in these newly approved products.
Thank you for joining us.
