In January the US Securities & Exchange Commission (SEC) approved the listing of 11 bitcoin exchange traded funds (ETFs) after years of denying applications. All 11 started trading the following day and all sorts of questions are now being asked.
The first is: why buy the ETF when you could already buy any multitude of crypto from any one of the hundreds of crypto exchanges? Here, security may be the reason. Exchanges being hacked, and instances of fraud or even just losing your coins are not uncommon (this is why I have always said hold your crypto in a hardware wallet). The bigger question is whether the ETF providers will offer any better security. Certainly they have reputations to worry about and tons of legislation, and the SEC has put many guardrails in place to enhance oversight and investor protection.
Another question is, what’s the difference between these ETFs and the various baskets on offer such as EasyEquities’s EC10*?
First, these new ETFs are only for bitcoin, whereas the basket usually offers holdings in 10 or more diverse coins. Perhaps more importantly, the baskets do not trade on an exchange and an exchange listing adds another layer of protection.
So when will we see other cryptocurrencies being offered via ETF? I think the SEC will probably approve others in the months ahead, but only top-tier coins. We’re not going to see an alt-coin ETF any time soon, if ever.
I think the SEC will probably approve others in the months ahead, but only top-tier coins
And is this good for the bitcoin price? Ahead of the announcement it rallied, but it’s pulled backed since. The reality is that many who wanted bitcoin exposure have already bought in, via an exchange. Others may have been waiting for an ETF, but the bigger story here is that crypto is growing up. We’re seeing local crypto exchanges register as financial services providers via the Financial Sector Conduct Authority after crypto was declared an asset last year. Bitcoin may be the granddaddy of crypto, but it’s not even 15 years old, with a market cap of less than $1-trillion. So, very early days.
Another question everybody is asking is when does the JSE list a crypto ETF? It has rejected bitcoin ETF applications before, but I do think the SEC decision paves the way for a JSE-listed bitcoin ETF in time. I don’t think it’ll rush into it, but it will happen.
The last question is whether you should buy one of these new ETFs. That’s obviously for you to decide, but if you’ve been waiting for an easier, and safer, way to get into crypto, then this is probably it. Find one from a reputable ETF issuer with a decent total expense ratio (most are around 0.25%) and get some exposure. But be prepared for wild volatility and large drawdowns.
* The writer holds shares in EasyEquities majority shareholder Purple Group
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