A group of US Congress members has sent a letter to the Securities and Exchange Commission (SEC) Chair Gary Gensler, urging him to approve spot Bitcoin exchange-traded funds (ETFs) as soon as possible. The letter, dated September 25, 2023, was signed by 12 representatives from both the Republican and Democratic parties, and argued that spot Bitcoin ETFs would provide more transparency, liquidity and investor protection than the futures-based ones that the SEC has already approved.
A spot bitcoin exchange-traded fund (ETF) is a type of investment product that tracks the price of bitcoin on the spot market, where bitcoins are bought and sold for immediate delivery. Unlike futures-based bitcoin ETFs, which use contracts that expire at a certain date and may deviate from the actual price of bitcoin, spot bitcoin ETFs aim to provide investors with exposure to the real-time value of bitcoin.
The letter stated that spot Bitcoin ETFs would track the actual price of Bitcoin, rather than the price of Bitcoin futures contracts, which are subject to contango and backwardation effects that can distort the market. The letter also claimed that spot Bitcoin ETFs would reduce the risk of market manipulation, as they would rely on multiple regulated custodians to hold the underlying Bitcoin, rather than a single futures exchange. Moreover, the letter asserted that spot Bitcoin ETFs would lower the barriers to entry for retail investors, who would not have to deal with the complexities and costs of trading futures contracts or buying and storing Bitcoin directly.
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There are several benefits of investing in a spot bitcoin ETF, such as:
Simplicity: A spot bitcoin ETF allows investors to access the bitcoin market without having to deal with the technicalities of buying, storing and securing bitcoins. Investors can buy and sell shares of the ETF through a brokerage account, just like any other stock or fund.
Liquidity: A spot bitcoin ETF provides investors with high liquidity, meaning they can easily enter and exit the market at any time. The ETF also reduces the risk of slippage, which is the difference between the expected price and the actual price of a trade, due to its large trading volume and tight spreads.
Regulation: A spot bitcoin ETF is subject to the rules and regulations of the securities market, which may offer more protection and transparency for investors. The ETF issuer is responsible for ensuring that the fund has enough bitcoins to back up its shares, and that the bitcoins are held by a qualified custodian. The ETF also has to comply with reporting and auditing standards and disclose its fees and risks to investors.
Diversification: A spot bitcoin ETF can help investors diversify their portfolio by adding exposure to a new asset class that has low correlation with other traditional assets, such as stocks, bonds and gold. This may enhance the portfolio’s risk-adjusted returns and reduce its volatility.
The letter cited several examples of other countries that have already approved or are in the process of approving spot Bitcoin ETFs, such as Canada, Brazil, Germany and Switzerland. The letter urged Gensler to follow their lead and adopt a similar regulatory approach that would foster innovation and competition in the US crypto market. The letter concluded by saying that spot Bitcoin ETFs would benefit both investors and the US economy, as they would increase financial inclusion, diversification and resilience.
The letter is the latest sign of growing bipartisan support for crypto regulation in the US Congress, as lawmakers seek to provide more clarity and certainty for the nascent industry. The letter also reflects the frustration of many crypto enthusiasts and investors, who have been waiting for years for the SEC to approve a spot Bitcoin ETF, which is widely seen as a catalyst for mainstream adoption of the leading cryptocurrency.