Eleven Bitcoin ETFs open for trading on US stock exchanges, fifteen years after Bitcoin first launched. What is an ETF and what does the Bitcoin ETF mean for the world of decentralized finance?
Bitcoin ETFs have finally been approved in the US, just over 15 years since Bitcoin first launched. Eleven financial institutions have now been cleared to offer Bitcoin investments which will launch today on the NYSE, CBOE and NASDAQ markets.
What this means for DeFi
The ETF approval is historic as it is the first time a cryptocurrency-backed financial product will be offered for trading on a traditional stock exchange.
While many Bitcoin proponents are staunch in their belief that Bitcoin does not need an ETF, in reality it is one of the biggest steps taken in bridging the world of TradFi with today’s DeFi ecosystem. This is significant for many reasons, not least adoption, wherein Bitcoin will now be seen as a legitimate investment product with consumer protections in place.
These ETFs only cover Bitcoin-backed products, excluding Ethereum and other cryptocurrencies. In a statement issued by Gary Gensler, Chair of the SEC, it is stated that the approval of these Bitcoin products does not signal a wider acceptance or intentions to list other crypto assets.
That said, there have been rumors of an Ethereum ETF on the horizon. The Bitcoin ETF could be a watershed moment that changes regulator sentiment towards crypto on a broader scale and paves the way for other crypto-backed Exchange-Traded Products (ETPs) in future.
What is an ETF?
ETF stands for Exchange Traded Fund. They are a type of financial product that offers exposure to a commodity like gold, oil, or Bitcoin without the investor needing to physically take custody of it.
ETFs are a convenient way to speculate on the future demand for a finite resource without worrying about how to transfer or store it. Since they are covered by investor protection laws, many people will see ETFs as a safer alternative to self-custody.
Why someone would buy a Bitcoin ETF
When you own shares in a Bitcoin ETF, which "represent units of fractional undivided beneficial interest in and ownership of the Trust", you pay a fee to the fund or trust to keep a certain amount of Bitcoin in custody, and manage it for you. The value of your shares will rise or fall with the price of bitcoin, without actually ever owning the underlying Bitcoin. This comes with pros and cons, as you will not be able to use your shares as a currency, but they will be protected through a legal framework that will insure your investment in case of loss or theft.
Since ETFs operate on conventional stock exchanges, they are also accessible to individuals and companies who are otherwise unable or unwilling to buy Bitcoin. Speculators believe that the ability to buy ETFs will mean a significant amount of new inflows into Bitcoin from companies and institutional investors.
How ETFs custody their Bitcoin
The vast majority of ETFs approved so far will be using Coinbase Custody to hold custody of their Bitcoin. A total of 8 of the 11 approved funds have chosen this route, which will see even more Bitcoin managed by Coinbase, raising concerns over centralization of the Bitcoin supply.
Three ETFs have each chosen different custodians, with the VanEck ETF custodied by Gemini, Fidelity using their own Fidelity Custody service, and Hashdex going with BitGo.
Bitcoin ETF fees
Each of the approved ETF providers are free to set their own fee structure, and after some last-minute changes saw a heated race to the bottom, most have settled on fees of less than 0.5%, and some even offer a no-fee period. The ETF providers and fees approved so far are as follows:
ARK 21Shares Bitcoin ETF (ARKB): 0.21%, no fees first 6 months or first $1 billion
Bitwise Bitcoin ETP Trust (BITB): 0.2%, no fees first 6 months or first $1 billion
Fidelity Wise Origin Bitcoin Trust (FBTC): 0.25%, no fees until July 31 2024
Franklin Bitcoin (EZBC): 0.29%
Grayscale Bitcoin Trust (GBTC): 1.5%
Hashdex Bitcoin ETF (DEFI): 0.9%
Invesco Galaxy Bitcoin ETF (BTCO): 0.39%, no fees first 6 months or first $5 billion.
iShares Bitcoin Trust (IBIT): 0.25%, no fees first 12 months or first $5 billion.
Valkyrie Bitcoin Fund (BRRR): 0.49%, no fees first 3 months.
VanEck Bitcoin Trust (HODL): 0.25%
Wisdomtree Bitcoin Trust (BTCW): 0.3%, no fees first 6 months or first $1 billion.
Please note these numbers may be subject to change. Check with the individual fund itself for more precise fees.
Not ready to buy ETF Bitcoin?
If the sound of buying your Bitcoin as an ETF through an old-fashioned stockbroker sounds too Web2, you can still get real Bitcoin and keep in your own custody. Wrapped Bitcoin, an ERC-20 version, is also available, meaning you can put your Bitcoin to work in DeFi and use it with smart contracts. Sound good? Swap tokens for wrapped Bitcoin using Matcha.
There's no platform fees (unlike ETFs!) and you can enjoy the deepest aggregated liquidity of 100+ DEXs, even when you bridge across networks, all with the lowest trade failure rates in the ecosystem. Try Matcha today!