The recent filing of a bitcoin exchange-traded fund (ETF) by BlackRock (BLK) with the U.S. Securities and Exchange Commission (SEC) has sparked renewed interest in spot bitcoin ETFs. To gain a better understanding of the implications of a spot bitcoin ETF for markets, it is important to look to Canada, where these products have been approved and running successfully for the past two and a half years.
The “not-your-keys, not-your-crypto” crowd may point to the drawbacks of getting portfolio exposure to bitcoin through an ETF, such as not directly owning the underlying asset. However, it is important to consider the benefits that the ETF structure offers to a broader range of investors. Canadian spot bitcoin ETFs have been subject to strict regulatory oversight, making it difficult for asset commingling, hacks, and fraud to occur. To date, investors who have bought units of Canadian spot bitcoin ETFs have never had their assets hacked or had their funds lost through malpractice or poor balance sheet management.
The development seems only to have increased divisive discussions on crypto-related financial instruments in the U.S. The SEC has greenlighted bitcoin futures ETFs and the direct buying and selling of digital assets on exchanges, but spot ETFs have been shown to be more efficient at mimicking direct portfolio exposure to bitcoin without the added uncertainty and volatility of the futures markets and the operational opacity of unregulated exchanges. The accessibility of a bitcoin-backed financial asset fully integrated into the legacy financial system is appealing to investors, as evidenced by the hundreds of millions of dollars that have flowed into the top three Canadian bitcoin ETFs.