Amidst the growing excitement for the approval of a spot Bitcoin exchange-traded fund (ETF), a recent report from JP Morgan implies otherwise. The JP Morgan report sheds light on the fact that the approval might not prove to be as dynamic as many are hoping it to be.
A spot Bitcoin ETF brings all the benefits of a futures ETF, such as investing in Bitcoin without using an exchange, paying less in fees than on a crypto exchange, and streamlining the process overall but a spot ETF invests in Bitcoin on the spot. The report says that while the crypto enthusiasts eagerly await the approval of a spot Bitcoin ETF in the US, such approval may not have the significant impact on the crypto market many anticipate.
In the report released Thursday, the group of JP Morgan strategists led by Nikolaos Panigirtzoglou considered several factors before coming to a conclusion. Putting its doubt into words, the report stated:
The potential approval of physically backed Bitcoin ETFs by the SEC [Securities and Exchange Commission] is unlikely to be a game changer for crypto markets.
Explaining the reasons behind their analysis, the analysts wrote that first, spot Bitcoin ETFs have existed in Canada and Europe for some time but have failed to gain significant investor interest. They added that outflows from gold ETFs over the past year or so have also not benefited Bitcoin funds overall, including futures ETFs.
Assessing the advantages of spot Bitcoin ETFs over future Bitcoin ETFs, the report states that while spot Bitcoin ETFs have some advantages over futures bitcoin ETFs, those benefits are “rather marginal.” Notably, the spot Bitcoin ETFs offer a direct and potentially more secure way of gaining exposure to Bitcoin whereas the issues publicly traded securities that offer exposure to the price movements of Bitcoin futures contracts.
It can be said that a spot Bitcoin ETF provides the same streamlined investment capabilities as a Bitcoin futures ETF, but it only allows users to invest at Bitcoin’s spot price rather than a future value.
Further, the analysts wrote that the spot Bitcoin ETFs eliminate complexities related to custody and transfer of the cryptocurrency and also mitigate the basis risk associated with futures-based ETFs. The basis risk here is a deviation between the value of an investment and its underlying benchmark. According to the report, spot Bitcoin ETFs also have the potential to better reflect real-time supply and demand, bringing increased liquidity and improved price transparency.
However, the analysts anticipate that the introduction of spot Bitcoin ETFs might have affect on the trading activity. The report states that the spot Bitcoin ETFs may shift trading activity and liquidity from U.S. Bitcoin futures markets “to the extent spot Bitcoin ETFs replace futures-based Bitcoin ETFs.”
As evident currently, the renewed race for a spot Bitcoin ETF is underway. Several renowned companies, including traditional finance giants BlackRock and Fidelity, are waiting for approval and competing to offer investors access to the crypto market.
While previously the SEC had rejected all spot Bitcoins ETFs, this time there is growing optimism that the SEC may provide approval as one of its main previous concerns is assumed to be addressed as ETF filers have noted their plans to enter into “surveillance-sharing agreements.”
Additionally, in a recent interview, the pro-crypto SEC commissioner also weighed in on the ongoing race to launch a spot Bitcoin ETF. She stated that “in other countries there are spot products that have been approved for a long time and there’s a lot of demand for spot products.” In large, Peirce also highlighted her positive stance for the spot Bitcoin ETFs much like the larger crypto community.