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Wall Street Journal: ETF may bring great development to Bitcoin investment



Bitcoin ETFs can bring institutions a lower-cost investment channel, but for cryptocurrency-savvy investors, ETFs may not be a good choice.

Original title: "Exchange ETF may bring great development to Bitcoin investment"

The impact of exchange-traded funds (ETFs) on the traditional investment industry has taken decades to be felt, but players in the cryptocurrency world may disrupt the traditional investment industry in a short period of time.

There is a growing sense in the market that a Bitcoin ETF may finally arrive in the US in the not-too-distant future. SEC Chairman Nominee Gary Gensler has taught courses on cryptocurrencies. The bitcoin market has grown significantly in recent months and now has some large institutions involved. Companies such as VanEck and Fidelity have reapplied to regulators to conduct Bitcoin ETF business.

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There are already signs of a huge latent demand in the market. The Toronto-listed Purpose Bitcoin ETF, the first bitcoin ETF in North America, has amassed about $1 billion in assets since its launch in February. Meanwhile, Grayscale Bitcoin Trust last week reiterated its longstanding intention to seek to convert its publicly traded bitcoin fund into an ETF.

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Units of the Grayscale Bitcoin Trust have long traded at a sizeable premium to the net asset value of their bitcoin holdings, but have recently traded below that net worth, which many analysts believe is in part due to the Bitcoin ETFs.

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One advantage of ETFs is that shares can be created and redeemed at any time to cover any discount or premium, which can greatly enhance their appeal. ETFs also have lower transaction costs, which will put pressure on fees across the Bitcoin ecosystem.

“You almost have to look at the fees right now as paying for the friction between the traditional financial system and the crypto ecosystem,” said Michael Sonnenshein, CEO of Grayscale Investments. ...the cost will come down.”

If Grayscale, which manages about $34 billion in assets, converts its publicly traded bitcoin fund into an ETF, it would become the second-largest U.S. commodity ETF behind SPDR Gold Trust and would take action to lower its current cost.

Bitcoin's volatility limits its ability to serve as a payment currency, so a group of entrepreneurs have created so-called stablecoins, cryptocurrencies pegged to assets such as the U.S. dollar or gold. The market capitalization of stablecoins has exploded over the past year. But Tether (USDT), the most popular stablecoin, has been exposed to a scandal. Its issuer Tether was accused of making false statements on the issue of reserve assets, and recently reached a settlement after being investigated by New York prosecutors. This incident highlights the risks that investors in the stablecoin space still do not understand, and the urgent need for more transparency.

Today, many small investors also invest in bitcoin through digital wallets, such as Coinbase Global, the company's largest source of income is retail transactions. For some crypto-savvy investors, ETFs may not be a good substitute. Currently, Bitcoin ETFs target Bitcoin, and many wallets offer a variety of cryptocurrency options and the number of varieties is growing. This wallet also enables activities such as borrowing against cryptocurrencies, paying with cryptocurrencies, and generating income. Still, for many investors who just want to ride on bitcoin's rise at minimal cost, these may not be relatively big problems.

Currently, Coinbase's growth shows no signs of slowing down. Before going public this week, the company reported adding 13 million verified users in the first quarter of 2021 alone, bringing its total to 56 million, more than it added in all of 2020.

If a Bitcoin ETF is approved, it could lead to a lot of business growth. Matt Hougan, chief investment officer at Bitwise Asset Management, said that in addition to opening the door to ordinary investors, the ETF may also make it easier for more financial advisors to offer bitcoin allocations to their clients. The firm manages more than $1 billion in cryptocurrency funds and has sought to launch a cryptocurrency ETF.

“ETFs could bring a whole new wave of capital to the market,” Hougan said.

For investors who invest in any cryptocurrency investment company today, they should consider that the next few years may have a very different market landscape.

Written by: Telis Demos Source: Wall Street Journal


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