The introduction of a spot-based Bitcoin (BTC<\/a>) exchange-traded fund (ETF) would make the asset more accessible to individual investors and mutual funds. What\u2019s more, unlike a futures-based Bitcoin ETF<\/a>, a spot-based ETF involves actually buying BTC. <\/p>\n So, will the approval of the first Bitcoin ETF be a bullish event? Not necessarily. <\/p>\n Over the years, the United States Securities and Exchange Commission (SEC) has rejected every Bitcoin ETF applicant, with the\u00a0latest denial issued to the VanEck Bitcoin Trust<\/a> on March 10, 2023.<\/p>\n The SEC concluded that the offer did not have a \u201ccomprehensive surveillance-sharing agreement with a regulated market of significant size related to spot Bitcoin.\u201c Regulators are hesitant to release what many believe would be a more equitable and transparent Bitcoin product.\u00a0<\/p>\n Investors now question whether the\u00a0latest bids from ARK Invest and BlackRock<\/a> to launch spot Bitcoin ETFs might be the solution to Grayscale\u2019s Bitcoin Trust (GBTC), an investment vehicle with shares traded on the stock exchange. <\/p>\n Interestingly, the GBTC \u201cpremium\u201d jumped to its best levels<\/a> in months after BlackRock announced its ETF filing.\u00a0<\/p>\n But while the potential approval of a spot Bitcoin ETF might seem bullish initially, its consequences for the BTC price can be negative, at least in the short term.<\/p>\n First, an ETF is a form of security that holds diverse underlying investments, such as commodities, stocks and bonds. The ETF may resemble a mutual fund because its issuer pools and manages the given assets.<\/p>\n The most well-known example of this instrument is the SPDR S&P 500 ETF Trust, which tracks the S&P 500 index. State Street manages the mutual fund\u2019s $436 billion worth of assets.<\/p>\n Related: <\/em><\/strong>Bitcoin ETF race gets hotter as ARK Invest adds surveillance agreement to application<\/em><\/strong><\/a><\/p>\n Buying an ETF grants the investor direct ownership of the fund\u2019s contents, resulting in different tax consequences than holding futures contracts or leveraged positions. While Bitcoin spot ETFs continue to be rejected, identical products have been available for decades for bonds, global currencies, gold, Chinese equities, real estate and oil.<\/p>\n The Grayscale Bitcoin Trust \u2014 an investment fund with $18.4 billion of assets under management \u2014 is currently trading at a -30% discount versus its Bitcoin holdings. This gap between their 626,778 Bitcoin at market value and the GBTC shares trading on regular stock exchanges reached as low as -49% in December 2022. <\/p>\n Consequently, this discount is likely justified as the instrument lacks the tools to allow arbitrage. Grayscale\u2019s GBTC is the undisputed leader in the cryptocurrency market, despite being classified as a closed-end fund, which means that the number of available shares is limited.<\/p>\n Shares of GBTC are not freely created, nor do they have a redemption plan. Due to this inefficiency, there are large price differences when compared to the fund\u2019s actual Bitcoin holdings. In contrast, an ETF gives the market maker the ability to issue and redeem shares, ensuring that the premium or discount is typically small.<\/p>\n GBTC charges a set 2% annual administrative fee; therefore, the discount may be acceptable given that the SEC continues to reject appeals and requests from all fund managers.<\/p>\n On the other hand, ETFs typically trade at par with net assets, as opposed to GBTC. For example, the Purpose Bitcoin ETF (BTCC.U) held a $5.63 net asset value per share on June 27, and the shares closed at $5.65 on the Toronto Stock Exchange. <\/p>\n Similarly, the U.S. derivatives ProShares Bitcoin Strategy ETF underlying price was $16.89 on June 28, while its shares traded at $16.89.<\/p>\n Essentially, an investment trust product is considerably less desirable than an ETF, and Grayscale has done little to mitigate the impact on GBTC investors thus far. However, market sentiment improved modestly after the world\u2019s largest asset manager, BlackRock, filed to launch<\/a> a Bitcoin spot price ETF.<\/p>\n The share price discount versus its contents will eventually trend to zero as redemptions and arbitrage opportunities arise if the SEC grants the asset manager Grayscale permission to convert its GBTC Trust to a bonafide Bitcoin ETF. <\/p>\n In this scenario, the odds are that a considerable amount of BTC could enter the market as investors will finally be able to exit their position at par.<\/p>\n The only question is: how much of that $18 billion will flow into other Bitcoin-related instruments or get sold on exchanges?<\/p>\n In any case, there\u2019s a good chance that a spot Bitcoin ETF approval will produce significant sell-pressure from Grayscale\u2019s GBTC conversion as BTC that\u2019s been locked for three to eight years reenters the market.<\/p>\n This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author\u2019s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.\n<\/p>\n<\/div>\nGBTC \u2018discount\u2019 remains in the double digits<\/h2>\n
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What\u2019s an ETF?<\/h2>\n
30% GBTC discount is likely justified<\/h2>\n
Spot Bitcoin ETF approval might initially pressure BTC<\/h2>\n