The demand for bitcoin exchange-traded funds (ETFs) is growing rapidly, as more investors seek exposure to the leading cryptocurrency without having to deal with the complexities of storing and managing it. According to data from CryptoCompare, bitcoin ETFs now hold nearly 4% of the total supply of bitcoin, up from less than 1% a year ago.
Bitcoin ETFs are funds that track the price of bitcoin and trade on regulated stock exchanges. They offer investors a convenient way to gain exposure to bitcoin without having to buy, sell, or custody the digital asset themselves. Bitcoin ETFs also provide more liquidity, transparency, and regulatory oversight than other types of bitcoin products, such as trusts or futures.
The first bitcoin ETF was launched in Canada in February 2021, and since then, several more have followed suit. As of March 2024, there are 12 bitcoin ETFs available in Canada and in the US, with a combined market capitalization of over $40 billion. The largest one is the Purpose Bitcoin ETF (BTCC), which holds over 200,000 bitcoins, or about 1% of the total supply.
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In the US, the first bitcoin ETF was approved by the Securities and Exchange Commission (SEC) in October 2023, after years of rejections and delays. The ProShares Bitcoin Strategy ETF (BITO) debuted on the New York Stock Exchange (NYSE) with a record-breaking $1 billion in assets under management on its first day of trading.
Since then, four more bitcoin ETFs have been launched in the US, with a total market capitalization of over $30 billion. The largest one is the VanEck Bitcoin Trust (XBTF), which holds over 150,000 bitcoins, or about 0.8% of the total supply.
Other countries that have approved or are considering approving bitcoin ETFs include Brazil, Australia, Germany, Switzerland, and Japan. The global market for bitcoin ETFs is expected to grow even further as more investors and institutions embrace the cryptocurrency as a legitimate asset class.
Bitcoin ETFs have several advantages for both investors and the bitcoin ecosystem. For investors, bitcoin ETFs offer a simple and cost-effective way to access the cryptocurrency market without having to deal with technical issues such as wallets, keys, or exchanges.
Bitcoin ETFs also reduce the risk of theft, hacking, or loss of funds that can occur with direct ownership of bitcoin. Additionally, bitcoin ETFs provide more tax efficiency and diversification benefits than other forms of bitcoin investment.
For the bitcoin ecosystem, bitcoin ETFs increase the demand and adoption of the cryptocurrency, as they attract more mainstream and institutional investors who may otherwise be reluctant or unable to invest in bitcoin directly. Bitcoin ETFs also help to reduce the volatility and improve the liquidity of the bitcoin market, as they create more stable and consistent sources of buying and selling pressure.
Furthermore, bitcoin ETFs enhance the legitimacy and credibility of bitcoin as an asset class, as they bring more regulatory oversight and compliance standards to the industry.
Bitcoin ETFs are not without their drawbacks, however. Some critics argue that bitcoin ETFs dilute the original vision and value proposition of bitcoin as a decentralized and censorship-resistant form of money that does not rely on intermediaries or authorities.
By investing in bitcoin ETFs instead of holding bitcoin directly, investors give up some of their control and sovereignty over their funds and expose themselves to counterparty risk and potential regulatory interference.
Moreover, some skeptics question whether bitcoin ETFs actually contribute to the security and sustainability of the bitcoin network, as they do not necessarily increase the number of nodes or miners that validate transactions and secure the network.
Despite these challenges, bitcoin ETFs are likely to continue to grow in popularity and adoption as more investors seek exposure to the cryptocurrency market. Bitcoin ETFs now hold nearly 4% of all bitcoins — and they’re not slowing down.