Bitcoin investors are eagerly waiting for regulators to approve the first U.S. spot bitcoin exchange-traded fund, which could be significant for cryptocurrency investors, experts say.
Last week, the price of bitcoin notched an 18-month high, climbing to $37,970, after BlackRock took first steps toward an ether ETF. The price of bitcoin has more than doubled since the start of 2023, but it’s still well below its November 2021 peak.
At least nine asset management firms — including BlackRock, WisdomTree, Valkyrie and others — are waiting for Securities and Exchange Commission approval to issue a spot bitcoin ETF. Experts say the first approval could come early in 2024.
“For ETF investors, this would be the best product on the market,” said Bryan Armour, director of passive strategies research for North America at Morningstar. “All the other options right now have flaws to varying degrees.”
Currently, U.S. investors can buy bitcoin futures ETFs, which own bitcoin futures contracts, or agreements to buy or sell the asset later for an agreed-upon price. The long-awaited bitcoin spot ETF would invest in the digital asset directly.
If the SEC signs off on a spot bitcoin ETF, Armour anticipates a “batch approval,” with multiple ETF listings on the same day. “I would expect them to rule on spot ETFs holistically because most issuers are taking similar approaches” with applications, he said.
“There are a lot of good signs that the SEC is taking the most recent batch of filings more seriously,” Armour said. “I’m more optimistic about a bitcoin ETF than ever before.”
Some crypto investors expect a bitcoin rally upon approval, but it’s also possible the price will dip as investors sell to collect profits, Armour said.
Still an ‘extremely volatile’ asset
While SEC approval of a spot bitcoin ETF may make the asset class more accessible to the masses, experts urge investors to consider their risk tolerance and goals before piling in.
“I think it depends on the investor,” said certified financial planner Ben Smith, founder of Cove Financial Planning in Milwaukee. If you’re a more aggressive investor with an appetite for higher risk, a spot bitcoin ETF could fit into a diversified portfolio, he said.
Still, experts often suggest limiting cryptocurrency exposure, such as 1% to 5% of your allocation, to minimize downside exposure. “It still remains an extremely volatile and speculative asset,” Armour added.
Some 72% of financial advisors said they would be more likely to invest in crypto if spot ETFs were approved in the U.S., according to a 2022 Nasdaq survey of 500 advisors.
