understanding Bitcoin ETF
Bitcoin, the world’s first cryptocurrency, went live in 2009 when its anonymous creator, under the alias Satoshi Nakamoto, mined the ‘Genesis Block’.
since then, numerous crypto tokens similar to bitcoin have come and gone. and crypto has emerged to be a new asset class with over 12,000 tokens at present. the crypto asset market has grown exponentially in a little over a decade and currently, the total market cap stands at around $2.6 trillion, as per CoinMarketCap. out of this, bitcoin alone commands a market cap of $1.2 trillion.
buying and securely holding crypto assets isn’t everyone’s cup of tea. for years, many investment firms argued that having a bitcoin exchange-traded fund (ETF) would make it much easier for people to have exposure to these new assets by eliminating the complicated ‘cold’ wallets and private keys.
the first application in the US for a bitcoin ETF was filed in 2013, but only recently did the US Securities and Exchange (SEC) give the bitcoin ETF a green signal.
the ProShares Bitcoin ETF went live on October 19. it is a futures-based ETF that tracks Chicago Mercantile Exchange (CME) bitcoin futures, or contracts speculating on the future price of bitcoin. this differs from a spot ETF that would be backed by actual bitcoins.
this isn’t the first crypto ETF in the world. but the fact that the US SEC gave it its blessing signals an accommodative stance from the regulator towards crypto assets, which saw a hostile crackdown in China earlier this year.
many such futures ETFs are expected to launch in the US soon. similarly, many applications for a spot-ETF have also been submitted to the US SEC.
since the start of 2020, we have seen many institutions and publicly listed companies buy and hold bitcoin on their balance sheets. an ETF can make it much easier for such institutions to get exposure to bitcoin, as an ETF is a more familiar and well-regulated product than the actual token itself. also, under the Liberalized Remittance Scheme (LRS), Indians can invest up to $250,000 each financial year into such ETFs.
Bitcoin, being scarce in nature and censorship-resistant, is often compared to gold and seen as a hedge against inflation. crypto is gradually seeing more acceptance and establishing itself as an entirely new asset class which can find a place in one’s portfolio.