With the new Bitcoin ETF, a new traditional financial product has reached the US market. At the beginning of the year, the SEC (United States Securities and Exchange Commission) approved eleven applications for ETF products in combination with the cryptocurrency Bitcoin (BTC). This is despite the fact that Bitcoin has had a rather difficult time in recent years. As of now, institutional and professional investors such as BlackRock are also able to invest in Bitcoin. And you don’t even have to come into contact with the blockchain. What exactly makes the new ETFs so special? Will the product also come to Europe? And what changes will Bitcoin ETFs bring to the financial market?
The Special Feature of the new ETFs
As a rule, exchange-traded funds (ETFs) are investment funds that track the performance of a securities index. The Bitcoin ETF is a new type of fund. It allows investors to benefit from the performance of the well-known cryptocurrency Bitcoin. Although Bitcoin ETFs have been available in the USA since 2021, they differ from the new products. Previously, there were only Bitcoin ETFs on cryptocurrency futures. This means that investors were able to participate in the performance of Bitcoin, but not invest directly in the physically deposited Bitcoin ETF.
However, the so-called Spot ETF, which was developed by the US investment company BlackRock, now makes this possible. This allows traditional money to flow into the blockchain in a traditional financial system. Investors do not have to deal with blockchain technology or the custody of tokens. It is expected that many investments will be made by people who want to diversify their portfolios. But even the diversification of small amounts will have a major impact on the Bitcoin price. The predictions are uncertain. But it is possible that Bitcoin will reach a price of 100,000 US dollars by the middle of the year.
Bitcoin ETFs in Europe
The legal situation in the USA for exchange-traded funds differs from that in Europe. This means that Bitcoin ETFs cannot be traded in Europe for the time being. Although the hype would make it possible, the regulations do not. The introduction of Bitcoin ETFs in Europe is simply not permitted from a regulatory perspective. The reason for this is the European Securities Directive, which states that you are not allowed to invest in a fund that invests in just one asset. An ETF should contain at least five different securities. In addition, mutual funds are not allowed to invest directly in crypto. These rules serve to protect investors. However, there are exceptions for a small number of professional investors. It is possible for them to obtain ETFs listed in the USA via certain providers.
In order to make Bitcoin ETFs accessible to all investors in Europe, the laws must therefore be circumvented and this is not so easy. A similar ETF that does not only invest in Bitcoin would be conceivable. It could be combined with other cryptocurrencies or other assets, for example. On the other hand, a change in the regulations could also lead to the approval of Bitcoin ETFs in Europe. However, this is a rather unlikely possibility.
While waiting for the new ETFs in Europe, there are some alternatives to investing. Investors have the option to buy regular bitcoins or blockchain ETFs. A blockchain ETF invests in a blockchain company. This allows investors to benefit from their growth opportunities. There is also the option of Bitcoin ETNs. An ETN (exchange-traded note) is a debt security that is traded on the stock exchange and replicates an underlying asset. Investments are not made in the cryptocurrency itself, but in securities. The securities replicate the performance of Bitcoin.
How is the Bitcoin ETF Changing the Financial Market?
Shortly after the Bitcoin ETF products were published, the price of Bitcoin rose to 47,000 US dollars. However, it fell again a short time later because many Bitcoin owners decided to sell. Many investors expected the value of Bitcoin to rise to 100,000 US dollars, but this was not the case. The reason for this is the people who bought Bitcoin during the all-time high. They had to wait until the price was high enough to get out. With the appearance of Bitcoin ETFs, these prices could be reached again. Now was the perfect time to exit. Due to the many sales, a lot of Bitcoin was then flushed onto the market, causing the price to fall again. However, it is likely that this situation will not last and prices will rise again.
Expected Development this Year
Overall, there are two options for how the financial market could continue to change this year. Either Bitcoin ETFs will create more demand, which would lead to high Bitcoin prices, even in the long term. It is very likely that the price will rise in the coming months as investors diversify their portfolios and the next Bitcoin halving is due in April. But even after that, the value could hold up.
The second option is that the price will fall again after the middle of the year because investors sell too much. After all, if a lot was bought in the previous months, a lot can also be sold in reverse. This would put more and more Bitcoin into circulation, which could lead to a fall in the value of Bitcoin.
Conclusion
No clear predictions can be made. The fact is that the new Bitcoin ETF will have an impact on the market and will change it in the future. The financial product will ensure that a lot of money flows into the market soon, especially when the next halving is due in April. However, it is just as likely that the tide will turn again afterwards. Demand may remain, but it could just as easily fall again. All in all, the Bitcoin ETF represents not only potential for the market, but also risk.
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