Published on June 10th, 2024 | by Jameelah "Just Jay" Wilkerson


Bitcoin Has Become Easier to Trade in The US Due to ETFs

On January 10, the SEC approved spot ETFs for Bitcoin, unlocking a door to new investors who don’t want to take additional steps when it comes to trading the digital asset. For proponents of cryptocurrencies and DeFi, the formal approval confirms investing in Bitcoin is safe, and it will fulfill its promise to become a global decentralized digital currency. Since Bitcoin’s genesis, anyone wanting to own a coin would have to adopt a digital wallet or open an account with a trading platform. ETFs are more suitable for beginning investors as they offer flexible trading, better transparency, and greater tax efficiency. There are some drawbacks, though, such as trading costs. 

Bitcoin can be bought and sold like mutual funds or company shares. It’s a popular investment option in the US, and there’s ample evidence to suggest that trading activity coincides with the debut of spot Bitcoin ETFs. Cryptocurrency is easy to trade on American exchanges as opposed to overseas platforms, and this change in liquidity can be attributed to the new financial instruments. It’s definitely a market evolution. The update comes at a time when the market is bullish on the cryptocurrency segment, highlighting growing investor confidence in Bitcoin as an asset class. Bitcoin dominated inflows, while Ethereum also benefited considerably.  

Enhanced Liquidity Could Lead to More Stable Prices and Easier Price Discovery 

There’s an evident transformation in Bitcoin liquidity dynamics, with a preference for US-based cryptocurrency exchanges. By liquidity, it’s understood the ease of converting Bitcoin into cash or exchanging it for another digital asset; it impacts price volatility and trading activity. Cryptocurrency exchanges in the US have emerged as key players in facilitating Bitcoin trades, ensuring a steady flow of assets, which improves liquidity, as there are countless buy Bitcoin orders and available sellers. Although the benefits are manifold, this liquidity expansion doesn’t cause dramatic price fluctuations. On the contrary, enhanced liquidity leads to orderly conditions in the cryptocurrency market, resulting in stabler prices and easier price discovery. 

Bitcoin is more stable than shares in tech giants like Meta and Amazon, which translates into the fact that investors can easily buy or sell the shares of the ETF they’re interested in. Spot Bitcoin ETFs bring about more opportunities for institutional and retail investors to make money through speculation without the technical challenges of managing a Bitcoin wallet or the security concerns of safeguarding private keys. By enhancing cryptocurrency market liquidity, ETFs dominate price discovery, the process by which new information is incorporated into the digital asset’s price. When the markets are more integrated, changes to prices on all exchanges lead to price discovery.  

Even If Spot Bitcoin ETFs Took Forever, They Became Instant Hits 

The SEC refused to approve spot Bitcoin ETFs because of fear of market manipulation since the cryptocurrency is traded on unregulated and fragmented markets that can be subject to fraud, hacking, or price-value gaps. The cryptocurrency community has been eagerly anticipating for a long time the launch of the first spot Bitcoin ETFs in the US, which would make investing more approachable without requiring those interested to own the digital asset directly. In a crucial decision, the SEC officially agreed to give the green light to 13 applications to create a Bitcoin ETF that tracks the price of the underlying asset. Examples include a range of offerings that range from ARK 21Shares Bitcoin ETF to WisdomTree Bitcoin Fund. 

Part of the reason why spot Bitcoin ETFs are so popular is that they make it possible for investors to test the waters before diving in. In other words, they can gauge market interest in possible offerings. Formerly, only emerging companies could engage in this type of communication, so cryptocurrency market participants are better positioned to leverage the expanded access to capital markets. The fascination of a spot Bitcoin ETF lies in its one-of-a-kind utility compared to existing financial instruments. Bitcoin futures are essentially bets between two investors about where the price will be at a certain point in time. The fund doesn’t hold any Bitcoin but gains exposure via futures markets. 

Investors May Choose Spot Bitcoin ETFS for Several Reasons 

Spot Bitcoin ETFs precisely echo Bitcoin’s performance, so investors can directly transact coins, as there’s a direct affiliation between the ETF’s price and the actual market value of the cryptocurrency. Investing in an ETF is advantageous if you prefer a traditional investment vehicle to gain positive returns. An ETF can be less expensive to own, not to mention that it trades continuously throughout exchange hours; such flexibility matters to some investors. Liquidity is one of the most important features of a spot Bitcoin ETF. Given that ETFs are traded on stock exchanges, they ensure liquidity, meaning the shares can be bought and sold without impacting the market price. 

Spot Bitcoin ETFs Are Just Like Other Publicly Traded Equities, But They Have Unique Characteristics

A spot Bitcoin ETF is a modern way of investing in a diversified way, so individuals with smaller amounts of capital can take advantage of features that were previously available to large institutional investors. Bitcoin can be traded 24 hours a days,  7 days a week, but ETFs follow the trading hours of the US stock market, which runs from 9:30 a.m. to 4 p.m. from Monday to Friday. Many brokers offer ETFs without commission, but it’s important to do your research before placing your trade because some brokerages might require a minimum purchase amount or let you buy shares for free and then charge you for selling them. 

Spot Bitcoin ETFs are bought and sold at cryptocurrency market prices that change throughout the trading day based on the value of the underlying asset. You can get price quotes at any time during the trading day, comprising two parts (bid and ask). The bid represents the price the buyer is willing to pay if you want to sell shares, while the ask represents the lowest price the seller is willing to accept if they want to buy. Generally speaking, the smaller the bid-ask spread, the more liquid the ETF is. Simply put, the cost of buying and then later selling is lower.  

About the Author

Publisher and CEO of The Hype Magazine. Follow me on Twitter @HypeJustJay

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