In a groundbreaking move, the US Securities and Exchange Commission (SEC) has given the nod to several spot Bitcoin exchange-traded funds (ETFs), paving the way for them to trade on domestic exchanges. This marks a significant shift from the previously available Bitcoin futures ETFs, as the spot ETFs will directly purchase and hold Bitcoin, providing a true reflection of the cryptocurrency‘s market value.
Spot ETFs: A Bridge to Cryptocurrency for Investors
Unlike their futures counterparts, the newly minted spot Bitcoin ETFs enable both individual and institutional investors to gain exposure to Bitcoin’s market price without the complexities of direct ownership and security concerns. Governed by SEC regulations, these investment vehicles promise a layer of oversight and must comply with stringent rules applicable to investment funds, their management, and service providers.
In Europe, however, investors face a different scenario. The Directive on Undertakings for Collective Investment in Transferable Securities (UCITS) thwarts the prospect of a single-asset, Bitcoin-only ETF due to its emphasis on investor protection and diversification. Consequently, European investors seeking exposure to Bitcoin must turn to other financial instruments.
Europe’s Alternate Path: Bitcoin Exchange-Traded Notes
Europe offers Exchange-Traded Notes (ETNs) as an alternative to ETFs, which, like their ETF cousins, often hold physical Bitcoin. Investment entities such as 21Shares, VanEck, ETC Group, and Deutsche Digital Assets provide these ETN products, facilitating investor participation in the growing cryptocurrency asset class.
Dominik Poiger of Deutsche Digital Assets GmbH highlights the benefits of ETNs, noting their ease of trade on recognized exchanges and their familiarity to investors. Despite their advantages, Poiger acknowledges a gap in legal protection for ETNs compared to ETFs, pointing out that in the event of an issuer’s bankruptcy, client funds could be at risk. To mitigate these concerns, certain security measures have been implemented by providers, including the appointment of regulated crypto custody trustees and the establishment of independent security trustees.