Source: Freepik | What is a crypto ETF?
The realm of crypto is exerting a profound influence on the global financial landscape. In 2023, a staggering count of 420 million individuals across the globe are actively engaged in crypto trading in some shape and form. Of course, this is because there have emerged numerous ways to trade in crypto- from spot trading to derivatives trading to other financial products and services: crypto ETFs or crypto exchange-traded funds are a good example.
If you are a traditional markets trader looking to foray into the UK crypto space, but the newness of everything is posing a scary prospect, a crypto ETF can be your solution! Crypto ETFs are very similar to traditional ones. What’s more, the newly filed BlackRock ETF can mean great things for the UK crypto regulatory landscape, as well as the broader world, since it would lend legitimacy to crypto as a whole, and ensure investor protection.
In this article, we will delve into crypto ETFs and the remarkable implications of the BlackRock ETF’s entrance into the arena, shedding light on the evolving dynamics of investment in the digital age. Starting at the basics, what is ETF?
What is a Crypto ETF? How Does a Bitcoin Spot ETF Work?
Bitcoin spot ETF
What is ETF, especially in the crypto space? A crypto ETF (exchange-traded fund) is a collective investment vehicle that mirrors a single crypto’s value or a mix of various crypto tokens. The ETF’s share price changes daily, influenced by investor buying and selling activities. Similar to regular stocks, crypto ETFs can be traded daily. It provides investors a convenient way to gain exposure to the crypto market’s price movements without directly owning the digital assets.
To operate a crypto ETF successfully, the issuing company must hold custody of the digital coin underlying it. Subsequently, investors acquire shares symbolising their ownership within the ETF listed on an exchange. This arrangement enables investors to indirectly experience the price fluctuations of the fundamental crypto without directly possessing it.
Now, a spot Bitcoin ETF is an open-end fund with the flexibility to issue or redeem shares in response to market demand. Its primary objective is to follow the real-time price of Bitcoin meticulously.
A spot Bitcoin ETF acts as a direct pipe for investors to interact with Bitcoin’s price shifts by owning actual bitcoins in its holdings. Buying shares lets investors access Bitcoin’s value changes without directly owning the crypto.
Acquiring shares grants part ownership of the fund’s Bitcoin holdings to a trader, with share value tracking Bitcoin’s price. Selling shares anytime adds flexibility, aligning spot Bitcoin ETFs with other exchange-traded funds.
BlackRock’s Bitcoin ETF: The Story So Far
BlackRock, the world’s leading asset management company, has ventured into crypto with a Bitcoin spot exchange-traded fund (ETF). This strategic move leverages BlackRock’s extensive financial network and expertise.
BlackRock’s recent filing on June 15, 2023 for crypto regulatory approval to introduce a spot crypto ETF for a surge of new capital has sent a resounding message of institutional confidence in crypto.
A Bitcoin ETF allows investors to track Bitcoin’s price without owning the crypto, as we discussed above. Investors buy shares tied to Bitcoin’s performance, bypassing the need for digital wallets or crypto exchanges. BlackRock’s iShares Bitcoin Trust, as stated in its application for approval to the SEC (United States Securities and Exchanges Commission), uses Coinbase’s custodian services and the CME CF Bitcoin Reference Rate for accurate pricing. This unique ETF falls outside existing Bitcoin crypto ETF categories.
The potential impact is substantial, as an ETF cryptocurrency from BlackRock of all:
- attracts institutional and retail investors previously unsure about crypto,
- bolsters market liquidity, and
- emphasises the necessity for clear crypto regulations.
While it could heighten market volatility, the ETF cryptocurrency overall might contribute to positive sentiment in the crypto sector.
Crypto ETFs Around the World
Source: Freepik| Crypto ETFs Around the World
Moving slightly away from the BlackRock ETF, the global landscape of crypto ETFs in general is witnessing remarkable growth as investors seek exposure to the ever-expanding world of digital assets. Several notable crypto exchange traded products have emerged worldwide with distinct focus and features. Let’s delve into some of them:
- ETC Group Physical Bitcoin ETF: Launched by ETC Group, it became the world’s first centrally cleared BTC ETP in June 2020, trading on Deutsche Börse’s XETRA. It was incorporated in Germany and later expanded to the SIX Swiss Exchange and Vienna Stock Exchange.
- VanEck Vectors Bitcoin ETN (VBTC): Initiated on 19 Nov 2020, Germany-based VBTC is backed by bitcoin and tracks the MVIS CryptoCompare Bitcoin VWAP Close Index. It’s listed on multiple European exchanges.
- WisdomTree Bitcoin (BTCW): WisdomTree launched its first crypto product, a physically-backed Bitcoin ETP, on December 3, 2019. BTCW is Europe’s most cost-effective ETF operating on Deutsche Börse’s XETRA, SIX Swiss Exchange, Euronext Paris, and Amsterdam.
- CoinShares Physical Bitcoin ETP (BITC): CoinShares started operating in the UK on January 19, 2021, and has been listed on the SIX Swiss Exchange. It’s backed by bitcoin and offers exposure to crypto for institutional investors.
- Melanion BTC Equities Universe UCITS ETF: Melanion Capital, based in Paris, has launched the Melanion BTC Equities Universe UCITS ETF on Euronext Paris. This marks Europe’s first listing of a UCITS Bitcoin-linked product. Launched on October 22, 2021, the ETF tracks the Melanion Bitcoin Exposure Index, offering retail and institutional EU investors a regulated and protected way to invest in Bitcoin-related initiatives.
Looking at these examples, you can tell that ETF cryptocurrency is not exactly a new phenomenon. However, the likes of the BlackRock ETF getting approved will have major implications for the UK crypto regulations, as well as the global crypto regulatory landscape.
The Current Crypto Regulatory Scene: the US and UK Crypto, and the Rest of the World
Now, if we are to discuss why crypto ETFs, especially spot ETFs, from BlackRock and others are important, it’s necessary to understand the current crypto regulatory landscape around the world.
The global status of crypto regulation varies across countries, encompassing a spectrum of approaches and policies. While certain nations have taken proactive steps to establish comprehensive frameworks, others are playing catch-up. For example, while UK crypto regulations are ahead of most other nations so far, the US is still falling behind.
Let’s take a closer look at crypto regulation around the world, starting with the UK crypto regulations!
1. United Kingdom (UK): When it comes to the UK crypto regulatory landscape, the House of Commons Treasury Select Committee proposed treating crypto trading as gambling to ensure consumer protection. The debate centres on striking a balance between safeguarding investors and fostering innovation. Various stakeholders, including industry bodies like CryptoUK and other UK crypto regulatory bodies like the UK Gambling Commission, have expressed diverse opinions on this matter. However, overall the UK crypto regulations are ahead of most other countries, ensuring that consumers stay protected with measures like conformation to the Travel Rule.
2. Switzerland: Switzerland actively and positively brings crypto regulations, classifying crypto as assets. In 2023, it continues aligning with international standards by embracing fresh initiatives, including those from the Financial Action Task Force (FATF). The nation’s objective is to safeguard companies and thwart the improper utilisation of digital assets for illicit purposes.
3. Hong Kong: Hong Kong is actively positioning itself as a significant web3 hub with positive crypto regulations. The Securities and Futures Commission (SFC) plans to regulate the crypto sector by granting licences for retail crypto exchanges. A task force formed by the government and industry experts aims to promote web3 growth.
4. Japan: The Japan Blockchain Association (JBA) is advocating for alterations in crypto regulation with the goal of strengthening the web3 economy. The proposals encompass discontinuing unrealised gains taxes for corporations holding crypto assets, transitioning to self-assessment for individual crypto transactions at a fixed 20% tax rate, and abolishing income tax on individual crypto exchange profits.
5. United States: While the United States remains a significant player in the crypto market, its crypto regulations need to catch up. The country grapples with a need for more clarity and uniformity in its approach to cryptos. For example, despite growing demand, the US Securities and Exchange Commission (SEC) has yet to approve a spot Bitcoin exchange-traded fund (ETF).
Since the US stands at the heart of global finance, their lack of crypto regulatory measures is a major factor for global investors continuing to be wary of crypto. This is precisely where we begin to truly understand how important the BlackRock ETF truly is, for UK crypto regulations and beyond.
How is BlackRock’s Crypto ETF a Game Changer for UK Crypto Regulations?
BlackRock’s spot crypto ETF
The BlackRock ETF is a pioneering financial instrument that aims to expose investors to the price movements of Bitcoin. What sets the BlackRock ETF apart from Bitcoin derivatives ETFs existing around the world is its focus on tracking Bitcoin’s immediate market price, commonly referred to as “spot prices,” rather than futures contracts or related investments. This gives investors a more significant stake into the actual asset.
The BlackRock crypto ETF is a strong strategic step that demonstrates confidence in the future demand for Bitcoin and emphasises the ongoing evolution and maturity of the crypto industry, that too from the largest asset manager in the US. It stands to increase both retail and institutional confidence in Bitcoin, simultaneously lending the asset legitimacy in the eyes of investors from both the aforementioned sectors.
If you are wondering about its effect on the UK crypto regulatory scene, any progress for crypto in the US does signify a success for the asset class around the globe: investors across the globe look to the US for direction when it comes to investments and finance.
Is it Wise to Trade Crypto ETFs, or Should You Stick to Bitcoin Spot Trading?
Now, while the BlackRock ETF awaits verdict from the SEC, for beginners venturing into the world of UK crypto investment, the choice between trading crypto ETFs and engaging in Bitcoin spot trading carries significant implications. Both have merits and considerations, making an informed decision crucial.
An ETF cryptocurrency offers multiple advantages:
- Diversification: Crypto ETFs offer the valuable advantage of diversification to those new to the crypto space right from the get go, enabling investors to spread their resources across multiple cryptocurrencies. This strategy mitigates risks linked to relying solely on one digital asset.
- Regulatory Security: Regulatory oversight provides an extra layer of security amid the often unregulated crypto environment. The mainstream backing of an ETF cryptocurrency is reassuring for investors wary of market uncertainties, offering protection against potential fraud and risks.
- Convenient Trading Experience: Crypto ETFs stand out for their user-friendly trading on conventional exchanges, enhancing liquidity and flexibility for investors. This simplicity distinguishes them from the intricacies of purchasing individual crypto, attracting traditional investors to the space.
- Accessible Market Entry: Crypto ETFs extend accessibility by allowing participation without the complexities of managing digital wallets or navigating UK crypto exchanges. This inclusivity widens participation even for beginners who are less familiar with crypto intricacies.
On the other hand, Bitcoin spot trading involves purchasing and selling BTC at current prices, aiming to make spot trading profits. Notably, you need to make an account with one of the UK crypto exchanges to spot trade Bitcoin, while you can trade an ETF cryptocurrency through traditional markets.
Advantages of BTC spot trading through UK crypto exchanges include:
- Competitive Bargaining: When parties negotiate, they often compete to offer the best prices, benefiting both buyers and sellers. This creates an active and interesting market.
- Diverse Trading Strategies: When you deal with the actual crypto instead of an ETF cryptocurrency, you have the option to employ a wide range of trading strategies and diversify your portfolio with your own research.
- Efficiency: In Bitcoin spot trading, you can make money by taking advantage of even the minutest price differences.
Here is a table to make a comparison between crypto ETFs and Bitcoin spot trading easier:
|Aspect||Crypto ETFs||Bitcoin Spot Trading|
|Investment Method||Funds holding various cryptos||Direct buying and selling of Bitcoin|
|Diversification||Spread investments across cryptos||Focus on Bitcoin price fluctuations|
|Trading Convenience||Easily tradable on conventional markets||Real-time buying/selling at any time|
|Regulatory Oversight||Subject to regulatory measures||Lacks as clear guidelines, considering current UK crypto regulations|
|Ownership||Hold shares in ETFs||Own actual Bitcoin|
|Risk Management||Spread risk across cryptos||Directly manage Bitcoin risk|
|Price Dependency||Can be influenced by various cryptos||Tied to Bitcoin price movements|
Crypto ETFs and Bitcoin spot trading each offer distinct advantages. An ETF cryptocurrency provides diversification and convenience, while Bitcoin spot trading offers direct engagement with Bitcoin’s dynamic market. For investors in the UK crypto space, the decision hinges on individual risk tolerance, trading proficiency, and asset ownership preferences.
Plan Your Future With Crypto!
In the digital age, crypto investments are a dynamic path to shape our financial future. With potential for growth and innovation, navigating the crypto realm requires understanding, strategy, and prudent decision-making. In that context, the introduction of crypto ETFs, hyped up immensely by the BlackRock ETF filing, signifies a transformative potential and new investment possibilities.
But, while the BlackRock ETF filing signals a monumental step, it’s essential to continue learning, adapting, and staying informed about UK crypto regulatory changes and market developments. By maintaining vigilance and expanding your knowledge, you can confidently navigate the evolving terrain of crypto investments.
As the crypto narrative continues to unfold, individuals and institutions alike have the chance to embrace innovation and shape their financial destinies. If you do choose to spot trade crypto, remember to do comprehensive research on the UK crypto exchanges, and pick the one most convenient for you!
If you are curious about the ever-changing world of cryptos, look no further, as CoinBrit has you covered! We provide timely updates, insights, and trends in UK crypto in terms of crypto regulations and more, and beyond!