A comprehensive guide to the recently approved US Bitcoin ETF by the SEC

After a decade of twists and turns, the U.S. Securities and Exchange Commission (SEC) has finally made a compromise in the market. On Wednesday local time, the SEC approved the first-ever Bitcoin spot ETF, authorizing the listing and trading of 11 ETFs starting on Thursday.

However, SEC Chairman Gary Gensler emphasized that this approval does not mean regulatory recognition of Bitcoin, calling it a "speculative and volatile asset." Both Gensler and his predecessor, Jay Clayton, had previously refused to allow such products to be launched.

Nevertheless, Bitcoin supporters still believe that the Bitcoin spot ETF will attract billions of dollars in new investments as financial advisors and other institutional investors use the traditional tool of ETFs that is familiar in the financial industry. For retail investors, the Bitcoin spot ETF can make investing in Bitcoin easier, cheaper, and safer in some ways.

In light of this, Wall Street News has compiled some questions that investors need to know before buying Bitcoin ETFs.

What is the difference between Bitcoin spot ETF and futures ETF?

Bitcoin futures ETFs have taken a step ahead of spot ETFs. On December 18, 2017, the Chicago Mercantile Exchange (CME), one of the world's largest futures exchanges, launched Bitcoin futures contracts.

According to Guosheng Securities' earlier report, the underlying assets of Bitcoin futures ETFs are Bitcoin futures contracts. The core difference between Bitcoin futures ETFs and spot ETFs lies in the underlying assets. From the perspective of price fluctuations, spot ETFs and futures ETFs are very similar, both aiming to accurately track the price of BTC and help investors gain exposure to BTC. Generally, futures ETFs have higher fees because they also involve futures contract operations, which are more complex.

Therefore, the market has been eagerly awaiting the approval of Bitcoin spot ETFs by the U.S. SEC.

When will Bitcoin spot ETFs be listed?

The listing of U.S. ETFs is divided into two steps. The SEC first authorizes exchanges such as the New York Stock Exchange and Nasdaq to list ETF shares, and then approves the prospectus submitted by each issuer. Once these signatures are in place, most ETFs can begin trading.

According to the SEC, the agency has approved the listing and trading of Bitcoin spot ETFs through an expedited process, starting trading on Thursday local time.

What are the fees for Bitcoin spot ETFs?

Currently, there are about a dozen issuers working on launching Bitcoin spot ETFs, so there is intense competition in terms of pricing.

Among them, the lowest fee comes from Bitwise Asset Management, which stated that it will charge a 0.2% annual expense ratio for its fund. The fund launched by ARK Invest, under the leadership of Cathie Wood, and 21Shares, the issuer of cryptocurrency trading products, will charge a fee of 0.21%. The fund jointly launched by VanEck and BlackRock will also charge a fee of 0.21%, while Fidelity Investments will charge a rate of 0.25%.

In addition, some issuers, including Bitwise, ARK/21Shares, and Invesco, plan to completely waive the fees for managing assets between 1 billion and 5 billion US dollars within six months.

According to media statistics, the most expensive fund currently is the Grayscale Bitcoin Trust Fund, which has already started trading but plans to convert to an ETF. Currently, the fund has a size of 27 billion US dollars and charges a fee of 2%. In a document, Grayscale Fund stated that after the fund is converted to an ETF, it will charge an annual fee of 1.5%.

All funds have the ability to adjust their fees before and after launch, and some issuers have even lowered their fees in the filing process before the initial launch.

What are the advantages of holding a Bitcoin ETF compared to holding Bitcoin directly?

The main advantages are cost and convenience.

If you buy Bitcoin directly, small investors on many trading platforms sometimes need to pay fees and spreads that exceed 1% of their purchase amount. Since many platforms, including Robinhood Markets and Fidelity, offer zero-commission trading, buying Bitcoin ETFs is much cheaper.

In addition, compared to opening a dedicated account for buying Bitcoin on platforms like Coinbase, investing in ETFs is more convenient, as investors can manage Bitcoin and other assets in the same account. Investors also don't have to worry about the risk of losing or being stolen passwords for cryptocurrency exchange accounts, reducing the potential loss of assets.

Bitcoin ETFs can also be held in investors' retirement accounts, which avoids capital gains tax from holding Bitcoin directly. However, this also means that even if the price of Bitcoin falls, the tax generated in the retirement account will not decrease.

In summary, holding Bitcoin in a dedicated cryptocurrency trading account carries significant risks, which has deterred many institutional investors and financial advisors from directly investing in Bitcoin. Now, fund companies are launching Bitcoin ETFs, allowing investors to hold them through traditional stock accounts. Fund companies are betting that this approach may attract billions of dollars in new capital, thereby driving the continued growth of the Bitcoin market.