Spot BTC ETFs have arrived
As of this week, spot bitcoin ETFs are approved and listed in the U.S. [Namthip Muanthingthae via Getty Images]
There’s never a dull moment on the blockchain. Here’s what you need to know this week:
Understanding spot bitcoin ETFs. Now that the SEC has approved 11 new spot BTC ETFs, here’s what you need to know.
A closer look at Ethereum’s 2024 roadmap. Major upgrades could lower fees and make web3 more user-friendly.
This week in numbers. The sizable sum of bitcoin someone sent to Satoshi Nakamoto’s original wallet, the amount of merchants that accept BTC around the world, and more stats to know.
SWEET SPOT
The SEC approved 11 spot bitcoin ETFs. Here’s what you need to know
Following months of anticipation, the U.S. Securities and Exchange Commission (SEC) finally approved 11 spot bitcoin exchange-traded fund (ETF) applications on Wednesday.
Industry watchers are expecting billions of dollars in new capital to flow into crypto as a result of the new funds, which will buy bitcoin and sell ETF shares via conventional brokerages.
The ETFs — from Wall Street giants like BlackRock and Fidelity and crypto-focused firms like Grayscale and Bitwise — started trading on Thursday. According to Bloomberg, “over $2.6 billion has changed hands in just the first few hours of trading.” (Coinbase is the custody partner for eight of the newly-approved ETFs.)
Bitcoin, which rose more than 150% in 2023 partly on the expectation that such an ETF would be approved, crossed $49,000 on Thursday morning, its highest point since late 2021, before retreating.
The approval of the ETFs marks a ”watershed” moment for the crypto industry in making bitcoin accessible through an investment vehicle that is widely embraced by mainstream investors.
We’re here to answer your ETF questions.
Why are spot BTC ETFs such a big deal?
Over the course of the last year, crypto prices have repeatedly surged as news broke around the SEC potentially approving one or more of the products. (On Tuesday, for instance, BTC prices spiked after the SEC’s X account was compromised and a false message appeared claiming that the agency had approved bitcoin ETFs for trading.)
That’s because ETFs — which typically have low fees and track an asset like gold or a basket of assets like tech stocks — are popular investment vehicles with more than $10 trillion under management worldwide.
Because they can be bought or sold via familiar brokerages and held by everyone from individuals saving for retirement to hedge funds, spot BTC ETFs are seen as a potentially powerful way to increase mainstream adoption of crypto.
Before this week, there were already crypto ETFs in the U.S., but not “spot” ETFs that hold crypto directly — instead they hold BTC or ETH futures contracts (bundles of agreements to buy crypto in the future at a specific price). The first BTC futures ETF had a blockbuster debut in 2021, but earlier this year several ETH futures ETFs launched with less fanfare.
What’s the difference between buying a spot BTC ETF and buying bitcoin?
Spot BTC ETFs offer investors exposure to bitcoin’s price movement — instead of owning BTC directly, you would own shares that are backed by the BTC the fund purchases.
For certain investors, there’s a benefit to this arrangement: Because the spot ETFs trade on conventional exchanges and can be accessed through traditional brokerages, it will be easier, for example, for retirement accounts, hedge funds, and pension funds to gain exposure to bitcoin’s price movements.
But if you want to control your own bitcoin with your own private keys, you’ll need to buy it from a crypto exchange (like Coinbase). This gives you much more freedom over what you can do with the bitcoin — everything from sending it to a self-custody wallet to interacting with the broader crypto ecosystem by, say, purchasing Ordinals.
How big is the potential market for spot BTC ETFs?
The funds are expected to bring billions of dollars of fresh capital into bitcoin from both individuals and institutional investors. (When the first gold ETF was introduced in the U.S. in 2004, it saw nearly $2 billion in inflation-adjusted inflows in its first four weeks, and nearly $5 billion by the end of the year.)
Last fall, before the ETFs were approved, the founder of the Digital Assets Council of Financial Professionals noted that half of U.S. financial advisors held bitcoin themselves, but only 12% were recommending it to their clients. “The primary reason that advisors [were] not recommending bitcoin is because there [wasn’t] an ETF,” he added.
In efforts to attract investors, many of the Wall Street firms pursuing spot ETFs have announced strikingly low initial management fees, with BlackRock’s iShares ETF charging 0.12% for the first 12 months (or first $5 billion of inflows), and the Invesco Galaxy ETF waiving its fee entirely for the first six months (or $5 billion).
The bottom line...
“By giving investors a convenient and familiar way to access spot crypto,” said Coinbase in a blog post on Wednesday, “ETFs will make crypto available to millions of new investors and further cement it as a mainstream asset.”
ETH SEASON
Will Ethereum’s upgrades help the second-biggest crypto catch up to BTC?
Given that crypto’s 2023 rally was supercharged by spot bitcoin ETF optimism, it’s maybe not surprising that ETH trailed behind BTC in terms of percentage gains. This year, however, some major upgrades on the Ethereum roadmap have many HODLers feeling extra bullish on the second-biggest cryptocurrency by market cap. Here’s what you need to know.
Ethereum fees could fall.
Ethereum’s code gets frequent upgrades, some of which are more consequential to everyday users than others. In the coming months, Ethereum’s Dencun upgrade is expected to implement EIP-4844 (“EIP” stands for “Ethereum improvement proposal”), which has the potential to be a pretty big deal — because some ETH watchers predict that it could help drive network fees down by 90% or more.
The upgrade, also known as proto-danksharding, is the next evolution of technology that splits the network into many “shards” to allow for even faster transactions. According to a prediction from asset manager VanEck, it could “reduce transaction fees and improve scalability for layer 2 chains such as Polygon, Arbitrum, Optimism.”
According to Bitwise, the upgrade could drive the average fee per transaction down significantly — to below $0.01 — on certain layer 2 blockchains: “A 90%+ reduction in the cost to use Ethereum will radically increase the types of activities individuals can feasibly participate in on the network.”
“Account abstraction” could make web3 more user-friendly.
When you interact with a web3 app via a current-gen crypto wallet, seemingly simple transactions often require a multi-step process and careful management of private keys and seed phrases.
A number of current and future ETH upgrades are aimed at allowing for “account abstraction,” which uses smart-contract powered wallets to securely hold assets and manage transactions in more user-friendly and flexible ways. According to the Ethereum Foundation, here are just a few of the potential benefits:
The user experience will become much simpler. “For example, a simple swap should be a one-click operation, but today it requires signing multiple transactions for approving spending of individual tokens before the swap is executed.”
Transaction fees would be easier to manage. “Not only can applications offer to pay their users’ gas fees, but gas fees can be paid in tokens other than ETH, freeing users from having to maintain an ETH balance for funding transactions. This would work by swapping the user’s tokens for ETH inside the contract and then using the ETH to pay for gas.”
It would be harder to lose your crypto by making a mistake. “For example, backup keys can be added to a wallet so that if you lose or accidentally expose your main key, it can be replaced with a new, secure one with permission from the backup keys.”
The network could become even more decentralized.
After Dencun’s completion, one likely focus of Ethereum’s following upgrade, Pectra, is a technology known as Verkle Trees — which, reports The Defiant, “reduce[s] the hardware requirements associated with becoming a validator.”
Or as Ethereum cofounder Vitalik Buterin explained, “You will be able to verify Ethereum blocks and even be a validator without having hundreds of gigabytes on your disc, which is great for decentralization.” (Decentralization is one of the main goals of crypto — instead of relying on intermediaries like banks and credit card companies, crypto is typically powered by code distributed across the entire network of participating computers.)
The bottom line…
Ethereum remains the backbone of web3, and it should continue to become faster, cheaper, and easier to use.
The potential leap of proto-danksharding has JPMorgan predicting that ETH could outperform bitcoin and other cryptocurrencies in 2024. Meanwhile, several Wall Street giants (including BlackRock) are planning to double down on their spot BTC ETF ambitions with similar products that would buy ETH and sell shares via conventional brokerages.
NUMBERS TO KNOW
$151 million
Total inflows into digital asset investment products during the first week of the year, according to CoinShares’ latest report. Bitcoin saw $113 million of that total while ETH accounted for $29 million. Crypto fund inflows are often viewed as a proxy for demand among institutional investors.
6,300
Approximate number of in-person merchants around the world that reported accepting bitcoin as payment in the last year, according to a survey by BTC Map — up from around 2,200 the year before. “Bitcoin vendors are located around the world, but appear to be concentrated in Europe, the United States, and especially Latin America,” notes the Block.
26.9
Amount of BTC (worth roughly $1.2 million) an unknown user sent to a wallet controlled by Bitcoin’s pseudonymous creator Satoshi Nakamoto last week. Why would someone send BTC to a wallet that’s been dormant since the mysterious creator disappeared in 2010? Many have offered theories, but nobody knows for sure!
TOKEN TRIVIA
What is dollar-cost averaging?
A
A gradual investment strategy that does not rely on “timing the market”
B
A method to automate crypto purchases on Coinbase
C
A way to invest any amount of money at regular intervals of time
D
All of the above
Find the answer below.
Trivia Answer
D
All of the above
