The cryptocurrency landscape is on the cusp of a transformative era, heralded by the possible introduction of Bitcoin ETFs, championed by financial titans such as BlackRock and Fidelity. Bitcoin ETFs offer a structured and regulated gateway for investors to tap into the potential of Bitcoin, without the complexities and risks traditionally associated with cryptocurrencies. They avoid the need to have a wallet (which you are probably perpetually scared about losing) or trusting some offshore entity that is purposefully opaque in how they operate (think FTX).
This pivotal innovation is set to unlock a new wave of investments which has ignited a rally in Bitcoin's value, with prices soaring to USD 35,000, as the market anticipates a surge in demand from new investors. This enthusiasm is rooted in the belief that crypto is not just going mainstream but is poised for widespread adoption as a legitimate asset class.
Who knows, this could be hype or it could be the real deal.
What is an ETF?
Before diving in, it's crucial to understand what an ETF is. An Exchange Traded Fund (ETF) is an investment fund designed to track the performance of an underlying index, commodity, or a portfolio of assets. ETFs are traded on stock exchanges, allowing investors to buy and sell shares as they would with stocks. They spread the risk across various assets, and offer cost-effective, flexible options for building diversified portfolios with low expense ratios.
Why a Bitcoin ETF?
A Bitcoin ETF effectively means that you will be able to purchase an exposure to Bitcoin on the New York Stock Exchange through your normal broker (think Hatch, Sharesies, or Robinhood). You no longer need to get a crypto wallet or have your crypto held by some offshore unregulated entity. This is a much easier and safer way to invest in crypto which in many people’s opinion will open it up to a whole new world of investors.
Unlike existing crypto investment structures, an ETF will be subject to stringent regulatory standards, providing a layer of security and safety that direct crypto exchanges will struggle to match.
The Long Road to ETF Approval
The journey to launching a Bitcoin ETF has been fraught with regulatory hurdles, particularly with the U.S. Securities and Exchange Commission (SEC). The SEC has been cautious, scrutinising ETF proposals to ensure they meet strict standards for investor protection, market integrity, and transparency.
The SEC has been concerned on the potential for market manipulation and have therefore been hesitant to even look at any applications. Some in the crypto world see this as a sign that the SEC wanted to halt anything to do with crypto and were not even willing to consider crypto.
While the U.S. is slow on approvals, other countries have moved forward, providing valuable precedents for the SEC. The Kōura Wealth Carbon Neutral Cryptocurrency Fund invests in a Bitcoin ETF out of Canada, demonstrating the investor appetite for such products. A U.S. listing would simplify the process significantly for the everyday person and potentially lead to broader market adoption.
Bitcoin ETFs in New Zealand
At the moment, there are no crypto ETF’s in the New Zealand market.
The Kōura Wealth KiwiSaver Scheme is the only KiwiSaver Scheme in New Zealand to offer a Cryptocurrency fund. Kōura already takes advantage of the ETF world, by investing in the Fidelity Bitcoin ETF listed in Canada. We chose this route to invest because of the safety and security of the structure and the support from industry behemoth Fidelity.
The Impact of Institutional Involvement
The involvement of behemoths like BlackRock, the world's largest fund manager with control over approximately 5% of the global stock market, and Fidelity, the fourth-largest fund manager with $11.5 Trillion in assets under administration (AUA), cannot be overstated. Their entry into the cryptocurrency ETF space is not just a vote of confidence; it's a transformative development that brings credibility and a sense of mainstream acceptance to an industry that has often been regarded with scepticism.
Furthermore, BlackRock and Fidelity's forays into crypto ETFs indicate a broader trend of institutional adoption. They have the power to influence market trends, shape investor sentiment, and bring about a level of stability to crypto markets. Their involvement foreshadows increased regulatory clarity, improved market infrastructure, and greater investor protection.
Looking Ahead
The future of crypto ETFs is inextricably linked to the broader trajectory of the cryptocurrency market. As the industry matures and institutional players establish themselves, we can expect to see a more regulated, accessible, and stable crypto market. Bitcoin ETFs are a step towards this future, offering a bridge between the traditional financial world and the burgeoning realm of digital assets.
However, the crypto market is known for its volatility, and while the involvement of major financial institutions is a positive development, it does not immunise the market against risk. In the event these ETFs don’t go ahead it will likely see an adverse effect on the price of Bitcoin. Investors should conduct thorough due diligence, stay informed about regulatory changes, and consider the inherent risks associated with cryptocurrency investments.
Conclusion
The potential launch of Bitcoin ETFs by BlackRock and Fidelity marks a pivotal moment for the cryptocurrency industry. It suggests a future where crypto is not only mainstream but a staple of diversified investment portfolios, particularly as crypto becomes increasingly accessible to the average investor. The involvement of these financial powerhouses is a strong indicator that the industry is moving towards greater stability and legitimacy, and Bitcoin prices are expected to soar even higher with this institutional backing. This is not just the ascent of a new asset class; it's reshaping the investment landscape as we know it.
We understand that investing in cryptocurrency can be a risky proposition, and we always encourage our investors to do their own research and consult with a financial advisor before making any investment decisions.
ETFs typically take months to launch after initial filling and can still be pulled before they are officially launched.
Bitcoin is a highly volatile asset and historically has experienced significant value swings (+100% or – 50%) over short periods of time. There is no guarantee that assets will recover after a significant fall or that historical returns will continue. The volatile nature of the asset may result in the value of the fund falling significantly in value or even going to zero. Investors will be significantly disadvantaged if they need to withdraw funds during a Bitcoin downturn.
All cryptocurrency investments carry significant investment risk. All investors and potential investors should be aware cryptocurrency is a highly volatile asset, with a number of risks, including but not limited to additional risk through associated counterparty failures. You can read more about the potential risks here.
The majority of crypto currencies exist outside of the traditional regulatory environment. The lack of regulation and ability to hide transactions has meant that crypto currencies have and are being used by criminals to launder and transfer the proceeds of crime around the world. Some countries have banned their citizens from investing in or using crypto currencies as a result of these concerns. Some financial institutions refuse to interact with companies or individuals who operate in the crypto currency space due to Money Laundering concerns.
There is a risk that crypto currencies become subject to increased regulation or financial institutions refuse to process transactions that originate from crypto currencies. This will result in the value of cryptocurrencies falling due to investors being unable to convert their currencies into traditional currencies.