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Portfolio > Alternative Investments > Cryptocurrencies

Debate: Does the Approval of Spot Bitcoin ETFs Help the Average Investor?

By Robert Bloink By William H. Byrnes

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In a reversal from its previous position, the Securities and Exchange Commission recently approved the listing and trading of spot bitcoin exchange-traded fund shares.

In deciding to approve at least 11 spot bitcoin ETFs for trading as of January, the SEC was clear that it expressed no opinion on the actual merits of the investment option. Unlike existing bitcoin ETFs, these spot bitcoin ETFs hold the cryptocurrency itself rather than holding contracts that speculate on the future price of bitcoin.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the impact of the new bitcoin ETFs on cryptocurrency investments generally.

Below is a summary of the debate that ensued between the two professors.

Their Votes:

thumbs up Byrnes
Bloink

Their Reasons:

Byrnes: Approving the bitcoin ETF is a sign that U.S. regulatory agencies have finally recognized that investors should have full opportunity to invest in bitcoin and other cryptocurrency asset classes in the same manner as more traditional asset classes. The blessing of the SEC is going to have a huge long-term impact on the appeal of these ETFs for ordinary investors. The SEC also requires the sponsors of these ETFs to provide certain disclosures and information to allow investors to evaluate the investment and make their own decisions.

Bloink: Many investors may not have the knowledge to realize that these new bitcoin ETFs are actually likely to be a less efficient way for clients to invest in cryptocurrency generally. Clients should understand that the spot bitcoin ETF will trade only during market hours, as opposed to 24-7 trading options. The fees associated with the ETF can also reduce the value of the investment over time, even if the increased costs are relatively small in the short term. 

Byrnes: The spot bitcoin ETF gives investors an alternative to direct ownership that has the potential to reduce risk yet still allow for a cryptocurrency component to the client’s investment portfolio. That’s likely to attract an entirely new class of investors to the crypto arena as this is a much more palatable and marketable way to access the value of bitcoin and other cryptocurrency.

Bloink: The ETF structure itself will lead to a situation where the price of the spot bitcoin ETF is different from the underlying price of the bitcoin asset. All in all, these issues should be discussed with clients and will likely discourage investment in the ETF version in some situations, especially for clients who are just considering jumping into the cryptocurrency market.

Byrnes: Spot bitcoin ETFs registered a trading volume of about $14 billion in the first week they were available to investors. These spot ETFs are a great way to actually avoid some of the costs incurred by existing bitcoin ETFs, which must roll over the underlying contracts into new contracts once the original contracts have expired. That itself creates costs that can weigh down the value of the fund and make it less attractive overall. 

Bloink: Yes, these new spot bitcoin ETFs make it easier for everyday clients to invest in bitcoin in a more direct manner within their own brokerage accounts. However, even the SEC’s approval letter contained a stern warning for investors — reminding them that these bitcoin ETFs are entirely different from ETFs where the underlying assets are metals or other commodities with a physical use. These spot bitcoin ETFs must be thoroughly evaluated by advisors and clients before they make the investment decision. 

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Robert Bloink

William H. Byrnes

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