Blog Hero Image
back to knowledge base

Posted on Nov 10th, 2023

Spot Bitcoin ETFs: Bridging the Gap for Traditional Investors

A wave of recent high-profile filings for a spot Bitcoin (BTC) exchange-traded fund with the US Securities and Exchange Commission (SEC) has driven up Bitcoin’s price over the last few weeks. With very well-respected fund providers such as BlackRock (BLK) among the names that have filed, the potential impact of a positive SEC ruling on Bitcoin is huge.

Key takeaways 

  • Approval of US Bitcoin ETF will open up Bitcoin investment to many more investors.
  • Spot Bitcoin ETFs offer many desirable traits for the traditional investor, including increased accessibility, safety, transparency, and liquidity.
  • Canadian spot Bitcoin ETF providers have proven that these products work and are in demand from investors.

Proof of concept

The impending arrival of a US spot Bitcoin ETF is exciting for many investors in the space. It could potentially open up billions in inflows into the asset class. However, it is also important to point out that spot Bitcoin ETFs have been operating for over two years in Canada. In that time, they’ve functioned as designed, providing easy onramps for investors, never losing investor funds, and always being able to redeem units. Most importantly, inflows into these Canadian funds have been significant, considering the relative size of the Canadian market. This can be viewed as solid evidence that a more traditional means of exposure to Bitcoin is appealing to many investors.

Why is this important?

Bitcoin is an emerging asset class that has existed for only a decade and a half and is not fully integrated into the traditional financial system. This means that in many jurisdictions, accessibility to the world’s first cryptocurrency lacks regulatory oversight, can have a significant barrier to entry, and does not have sufficient consumer protection. This has made it difficult or unappealing for many non-crypto native investors to allocate capital towards Bitcoin. A spot Bitcoin ETF has the potential to bridge that gap and open up Bitcoin investing to millions more investors in the world’s most important financial market.

Appeal for the traditional investor

Ease of access
Currently, to get direct exposure to Bitcoin, you need to open an account with a crypto exchange, pass KYC protocols, transfer money to that exchange, purchase Bitcoin… and then transfer it to a digital wallet (or leave it on the exchange and risk losing it through exchange malpractice or insolvency as we saw with FTX). With an ETF, you can simply buy units through your current brokerage or investing app.

Reliable analog to buying actual Bitcoin
US markets are presently only able to buy Bitcoin futures ETFs. However, units of a spot Bitcoin ETF are actually backed by real Bitcoin that the issuer holds. This makes owning units in a spot fund as accessible as any other ETF but with the portfolio implications of having actual Bitcoin.

Safe and regulated
One of the main strengths of ETFs is their transparency and the high level of regulatory scrutiny that they operate under. The fall of FTX, Celsius, and BlockFi over the last year and a half have been incredibly poignant reminders of the dangers inherent in investing through non-regulated means. There is little room for poor balance sheet management, loss of funds, or fraud to occur when government bodies so closely regulate a product.

High level of liquidity
ETFs are designed to be highly liquid. This means that buyers or sellers can redeem or purchase fund units almost immediately. So long as investors make their trades within trading hours, turnaround will be close to immediate. Something that has proven not to be true in smaller or even larger crypto exchanges.

Tried and true

Though we can reference the Canadian market as a whole to highlight how these products will interact with investors, it’s also useful to get more granular. The Purpose Bitcoin ETF is an excellent example of the appeal of this type of financial product. As the world’s first – and currently largest – spot Bitcoin ETF, it has serviced hundreds of millions of inflows and outflows. Run by an industry-leading fund provider and properly regulated, it has offered best-in-class access to Bitcoin despite serious market turbulence. This battle-tested experience positions it as one of the key Bitcoin fund providers as Bitcoin matures further as an asset class.

Macro outlook

The Canadian perspective is very important. Canadian investors have shown that demand for spot Bitcoin ETFs is there, with the top Canadian funds now sitting on over $2.5 billion in assets under management. That sentiment is likely to be echoed south of the border. The difference, of course, is that the US has a $ 7 trillion ETF market, and if even a fraction of that gets diverted into Bitcoin ETFs, Bitcoin’s price is very likely to benefit significantly. With that potential outcome seeming increasingly likely, now is the time for investors looking to add Bitcoin exposure to consider already established spot ETFs like the Purpose Bitcoin ETF.

To learn more about how spot Bitcoin ETFs work, check out How Does a Bitcoin ETF Work? 

You can learn more about the Purpose Bitcoin ETF (TSX: BTCC) here.

Commissions, trailing commissions, management fees and expenses all may be associated with investment fund investments. The prospectus contains important detailed information about the investment fund. Please read the prospectus before investing. There is no assurance that any fund will achieve its investment objective, and its net asset value, yield, and investment return will fluctuate from time to time with market conditions. Investment funds are not guaranteed, their values change frequently, and past performance may not be repeated.

If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed; their values change frequently, and past performance may not be repeated.

This information is provided for illustrative and discussion purposes only. This material is not intended as a formal research report and should not be relied upon as a basis for making an investment decision. Historical trends do not imply, forecast or guarantee future results. Information is as of the date indicated and subject to change without notice. Nothing herein constitutes a prediction or projection of future events or future market behaviour.