What are spot BTC ETFs: is Bitcoin mainstream adoption coming?

From being a flight to quality to legalizing Bitcoin use in Argentina, Bitcoin is kicking up a storm in the crypto market and showing no signs of slowing down since its bottom in January 2023 after the FTX crash. With a spot Bitcoin exchange-traded fund (ETF) approval on the horizon, many believe that Bitcoin is en route to an all-time high as interest from traditional finance (TradFi) traders and institutions could propel BTC prices upwards.

If you're new to the world of ETFs and stocks, the idea of a spot crypto ETF being a catalyst for Bitcoin might seem confusing. From explaining what a spot ETF is to discussing the likelihood it'll bring an inflow of liquidity into Bitcoin, here's everything you need to know when exploring spot BTC ETFs and how they might impact mainstream crypto adoption.

What are spot Bitcoin ETFs?

A spot Bitcoin ETF is a financial instrument that provides exposure to the price of Bitcoin without directly owning the cryptocurrency. Unlike existing Bitcoin futures ETFs, spot BTC ETFs track the last-traded price of Bitcoin by holding the underlying Bitcoin asset itself. Shares of the ETF are traded on traditional stock exchanges like any other stock, offering traders a convenient and familiar way to include Bitcoin in their portfolio.

Why is a spot BTC ETF so popular among TradFi traders and institutions?

While the idea of trading Bitcoin isn't new for crypto natives, it's certainly made a huge splash in the TradFi scene as many believe it'll help bridge the gap between stocks and crypto. For traders who are more comfortable with trading stocks and bonds, the spot BTC ETF will certainly look like a more inviting entry into trading cryptocurrencies since you can liken a spot Bitcoin ETF to an ETF that's directly tracking Bitcoin's price. This ultimately lets TradFi traders and institutions gain exposure to the upside of Bitcoin without needing to buy and store it themselves.

Clear benefits like easier access to crypto and better portfolio diversification aside, many believe that spot BTC ETFs are so popular among institutions because such entities finally gain access to a financial instrument that's directly tracking the price of Bitcoin. For years, insurance companies and financial institutions with huge buying power have been limited to purchasing crypto directly. With the introduction of a spot BTC ETF, institutions can easily scoop up shares of the ETF and gain exposure to cryptocurrencies without the hassle of managing private keys and on-ramping funds.

Will a spot Bitcoin ETF be approved?

There's been plenty of speculation as to whether a spot Bitcoin ETF will ever be approved since BTC ETF requests from institutions like Ark Invest and 21Shares kept getting rejected. However, things took a turn once BlackRock announced it was keen on boarding the spot Bitcoin ETF train. With its formal filing in June 2023, the odds of a spot Bitcoin ETF getting approved were more or less confirmed given BlackRock's near-spotless track record of getting ETFs to market. With final tweaks and refilings currently being made from institutions like Fidelity's FBTC ETF and Franklin Templeton's EZBC ETF, the sentiment has changed. Many are now asking when the spot BTC ETFs will be approved instead of if they'll be approved as onlookers watch the news headlines in anticipation of the imminent spot BTC ETF approval.

Advantages and disadvantages of trading spot BTC ETFs

Unsure of the pros and cons of trading spot BTC ETFs? Here are some advantages and disadvantages that are worth keeping in mind.

Is Bitcoin going mainstream?

Will spot Bitcoin ETFs be the watershed moment for widespread crypto adoption? This is certainly a notion that's popular among early crypto adopters as they weigh the odds of BTC's mainstream adoption. While it's impossible to determine what lies in the near future for crypto's mainstream adoption, some commentators have suggested that a spot BTC ETF could be a catalyst for the upcoming crypto bull run. On the other hand, there are also cases where we might witness a minor BTC price correction heading into the Bitcoin halving.

The BTC bull case: increased inflows in light of the Bitcoin halving

According to Standard Chartered analyst Geoff Kendrick's BTC price prediction, Bitcoin looks prime for $200,000 by the end of 2025 if ETF-related inflows materialize as expected. He expects Bitcoin demand to likely soar once the spot BTC ETFs are approved and ready for trading as institutions swoop in to snag the Bitcoin necessary for their reserves. This would provide enough price upside for Bitcoin to possibly reach $100,000 before the end of 2024.

Coincidentally, this timeline aligns with the upcoming Bitcoin halving cycle that would see overall BTC supply fall as mining rewards are once again halved from 6.25 to 3.125 BTC. Ultimately, these catalysts are the reason why Bitcoin has been on a tear recently as traders buy in on the fear of missing out on the upcoming crypto bull market.

The BTC bear case: 'sell the news' fears remain

Although the stage for Bitcoin's mainstream adoption has been set thanks to the introduction of spot BTC ETFs, its road to mainstream acceptance might not be as smooth as some would expect. Chief among these concerns is the incredible rate at which Bitcoin prices have been appreciating and whether BTC can maintain this momentum ahead of these volatile catalysts.

As the crypto fear and greed index once again tips into extreme greed territory, we're likely to see more risk-on behavior as crypto traders once again speculate on BTC prices with leverage in hopes of greater gains. This could set the scene for a case of "buy the rumor, sell the news" as the crypto market prices in the approval of a spot BTC ETF and sees a massive selloff once the news of a spot BTC ETF approval is confirmed.

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Should you buy Bitcoin instead?

With all this talk of trading spot BTC ETFs, one question is sure to pop up in your mind as a crypto trader — why not just buy Bitcoin instead? Since trading spot BTC ETF shares doesn't grant you ownership of the underlying Bitcoin asset held in the institution's reserves, shouldn't it make more sense to buy Bitcoin directly for yourself if self-custody is a concern? Ultimately, this decision depends on a crypto trader's personal preferences.

Since the spot Bitcoin ETF is targeted towards TradFi traders and institutions who are less well-versed in dealing with crypto exchanges and the entire trading process, this concern holds some weight if you're already a crypto native. If you prioritize self-custody and the freedom to not be limited by regular trading hours in the stock market, then you may want to consider buying Bitcoin instead.

Beyond spot Bitcoin ETFs: the future of spot Crypto ETFs

While Bitcoin may have been the first spot crypto ETF to grab the world's attention, spot BTC ETFs might not be the only tradeable spot crypto ETF for long.

Will spot ETH ETFs be approved too?

If the spot BTC ETF gets the green light, we might see Ether, the second-largest cryptocurrency by market cap, poised to be the next big name in the spot crypto ETF scene. Thanks to its robust smart contract capabilities and thriving DeFi ecosystem, a spot ETF tracking the popularity of the Ethereum ecosystem and price of Ether certainly holds immense potential. Approving a spot ETH ETF could bring increased liquidity and stability to the Ethereum network, boosting ecosystem confidence and potentially fueling further innovation. However, compared to Bitcoin, Ether's differentiating factors like staking and gas fees call for careful consideration in constructing an ETH ETF that accurately reflects its value.

Other spot crypto ETFs down the line

Will other spot crypto ETFs follow suit beyond a spot ETH ETF? Based on VanEck's and Grayscale's efforts with its Solana ETN and Solana Trust, we might see a multitude of layer-1 based spot crypto ETFs like Solana ETFs down the line. This could cause a huge inflow of liquidity and interest in the different altcoins as traders who were previously put off by the barrier to entry when trading crypto can now gain exposure to their preferred coins and tokens through their respective spot crypto ETFs.

However, the path to a Spot ETF for each contender depends on various factors, including regulatory clearance, market demand, and the underlying asset's stability and liquidity.

Final words and next steps

Will spot Bitcoin ETFs be the key to unlocking Bitcoin's mainstream adoption? The answer, like most things in crypto, is uncertain. Whether you're a seasoned Bitcoin HODLer or a cautious crypto newcomer, one thing is clear: the future of Bitcoin is worth keeping an eye on as the crypto scene continues to blossom and make significant steps towards mainstream adoption of Bitcoin and other cryptocurrencies.

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FAQs about spot BTC ETFs

Can I buy actual Bitcoin with a spot BTC ETF?

No, you wouldn't directly own Bitcoin by trading spot BTC ETF shares. Rather, your shares represent a claim on the underlying Bitcoin held by the fund.

What are the risks of investing in a newly launched ETF?

New ETFs may be less established and have lower trading volume, potentially leading to wider bid-ask spreads and higher volatility.

How will spot BTC ETFs affect the price of Bitcoin?

Assuming the approval for spot BTC ETFs goes as planned, increased demand from institutions and TradFi traders through ETFs could potentially drive up the price of Bitcoin. However, there are no guarantees in crypto. Risks remain, and traders are encouraged to do their own research before committing any funds.

Are there alternatives to spot BTC ETFs for Bitcoin exposure?

Yes, you can buy and hold Bitcoin directly on a cryptocurrency exchange or trade Bitcoin futures contracts. Ultimately, it comes down to a trader's personal risk appetite.

How do I choose the best spot BTC ETF?

When comparing the different spot BTC ETFs, you should consider factors that differentiate one ETF from another. This includes expense ratios, underlying Bitcoin holdings, and total assets under management.