Today it would be challenging to find a person that didn’t hear about crypto or Bitcoin at least a few times during their time on this bizarre planet. Just recently I wrote a piece about crypto sponsorships in F1, and this is not the only sport that gives the industry some eyeballs.
A lot of regular people hear about crypto from their friends, colleagues, family members, social media channels, etc. You really need to live under the rock to have no idea about what Bitcoin is in 2023. Despite the coverage, many people have a really basic understanding of the concepts, which doesn’t stop them from holding some extremely strong opinions, such as…
“Lemme tell you what, this whole Bitcoin is a SCAM! They said so on TV, and my neighbor Zeb has lost his life savings on it. Ain’t nothing but a bubble, boy! Crypto-shrypto, I’m holding my money under the bed!”
I got carried away a bit there, but you get the gist. People get hostile towards things they don’t understand. For the common man, buying Bitcoin from a crypto exchange as if they were buying ecstasy from a guy with face tattoos in a seedy nightclub. It spooks them out.
Reality is a bit different, but the masses view buying cryptocurrency as a challenging, and thus intimidating process. Add to that the technical aspects of holding the assets, managing crypto wallets, switching between blockchain networks, remembering seed phrases, paying gas prices. so on and so forth. Some people can’t handle that, and I don’t blame them.
But would you believe it, there might be a solution to making crypto and Bitcoin in particular appear like a normie thing in the near future. I’ve got three letters for you… ETF.
Exchange-Traded Funds Are Here To Change The Ballgame
Exchange-traded funds, shortly ETF, will probably make some of you go all ‘WTF’.
An ETF is best described as an investment vehicle that is traded publicly like a stock, but tracks the performance of an underlying asset rather than one company. First exchange-traded fund was created in 1993, and it is a way for investors to get exposure to the value of an underlying asset, for example oil.
You don’t get to take the barrels with you, but you still get the dibs on them. ETFs unlock easy access to those who want exposure to the asset without the trouble of self custody. And let’s be honest, most people have no problem trusting large financial institutions with their assets, so it’s a popular thing.
ETF also allows retail investors to throw their money into a basket of assets at once. Let’s say you’re an indecisive money burner, the perfect option for you is to buy shares in a S&P 500 ETF, so you would invest in the 500 largest companies at once. Here, look at a pic that explains ETF in seconds!
ETFs trade on traditional stock exchanges, and their value rises when the asset increases in price, and falls when it decreases. BTC ETFs track the current price of the asset and act in unison with Bitcoin’s mood swings. Pretty simple stuff, eh?
Now with BTC ETF, investors buy shares in the ETF through a brokerage of their choice and can trade them the same way they’d trade AAPL or TSLA. Before ETFs, the burden of holding the asset was often falling solely on your shoulders, plus gave you additional headache in the form of filing taxes on profitable sales of Bitcoin. With a Bitcoin ETF, you can forget about all that ‘nerd crap’ and get exposure to the wonderful world of crypto without going through the hoops to get in the cult. I’m just joking about the cult.
This switch intensifies the appeal of crypto to regular folks, as well as highbrow institutional investors. Financial giants like Blackrock, Fidelity, and Invesco have run and knocked on SEC’s door to launch ETFs, and it looks like big changes are waiting for us. For the record, Blackrock has submitted 376 ETF applications in its history with 1 denial and 365 wins. They are kind of a big deal.
The SEC wouldn’t be able to stop them either if they truly wanted to do it, and it looks like the wheels are already in motion, as SEC has approved the first leveraged Bitcoin futures ETF. Many more to come?
Buying BTC ETF vs Buying Legit Bitcoin
Let’s circle back on what we have learned so far. There are still a lot of questions…
Bitcoin ETF is not managed by you, but by a firm that buys and holds the actual thing. The firm lists the ETF on a stock exchange, and investing guru monkeys trade the asset as they want. The difference?
First, ETFs represent equity shares, meaning you get a cut of the dividends that any company in the ETF pays to their shareholders. So when Tesla for example pays a dividend and you have shares in an ETF that includes TSLA, you get some of it. With Bitcoin’s decentralized nature though, that stuff isn’t happening.
Secondly, you have to pay fees to the company offering the ETF. With Bitcoin ETF, the portion of your fees would go to paying the custody and management fees for the purchase and storage of the Bitcoin.
What? You thought it would be the perfect, absolutely amazing option? Nothing is perfect.
BTC ETF is expected to bring a whole new level of mainstream trustworthiness and acceptance to Bitcoin investing. The approval of a Bitcoin ETF by the SEC would mean that institutional investors can more easily speculate on the price of Bitcoin, which would functionally bring Bitcoin in the same category as gold, oil, or any other traditional assets.
Lately more and more institutions are joining the crypto space, they all want a piece of the pie. Their goal is to get a sufficient market share of the crypto market, and sell additional pickaxes to their beloved “gold miners”. It is a good way for the rich to become richer, and make money off the Bitcoin.
It’s also not that bad for you and me.
Pros and Cons Of Bitcoin ETFs
They say there’s two sides to every story.
In this example, there are a lot of positives and negatives that will come with the introduction of Bitcoin ETFs. To avoid looking like a shill, I will combine pros and cons in an up-and-down trend, we’re talking about crypto after all.
I’m really trying hard not to appear biased here. Ok, let’s start this list:
(+) Bitcoin ETFs can potentially unlock a lot of new liquidity, giving BTC price a huge boost, much like gold ETFs in 2004.
(-) It will be ironic if we get to the point where big financial institutions will hold more paper Bitcoins than there will be in the total circulating supply. Look at the derivatives market – financial megacorps are going to milk an asset to its last drop.
(+) ETFs give investors a loophole to get BTC exposure in tax sheltered retirement accounts. So you cheeky sausages could load up more and share nothing on your profits.
(-) Holding ETFs on the exchange comes with a risk. If the fund collapses, you may lose your s#it, both liter
ally and figuratively. As unlikely as that sounds, weirder things have happened in the last few years.
(+) Investors will have an ‘inverse ETF’, meaning they could make a killing when BTC is going through a rough patch.
(-) ETF front-running is a thing, and legitimate investors could get hurt because of it. Most ETFs disclose their daily holdings, and are benchmarked to an index, so they are susceptible to manipulation.
(=) You can invest in crypto without buying it. This doesn’t appeal to crypto purists, but it can be a game changer for the general population. Something tells me only a crypto purist would read this blog post… In which case – run a node and home miner. Defend Satoshi’s vision. Everything else is noise.
In my personal opinion, running Bitcoin on the legacy financial OS is kinda dumb, but hey, if it works, it’s not that stupid anymore. Whatever gives the general population confidence to transition to a new system, I say! For the same reasons people should be able to buy oil using legacy financial products, people should be able to buy bitcoin using ETFs.
This could bring an awful lot of people through the door, and I’m all for it. What do you think? Leave some comments down below, let me know what you think about this topic.
P.S. London-based Jacobi Asset Management has listed Europe’s first spot bitcoin exchange-traded fund on Euronext Amsterdam. It’s not much, but it’s honest work…