Spot Bitcoin ETF May Entice Wealth Managers, Advisors Into Crypto

An approval could be "transformative," according to a report by crypto exchange Coinbase.

A spot bitcoin ETF approval could transform the ways financial advisors and wealth managers use cryptocurrency, according to research from digital currency exchange Coinbase Global Inc.  

The much-anticipated approval of the first spot bitcoin ETF in the U.S. could lead to billions of dollars being added to the bitcoin market over years, as financial institutions and money managers will obtain access to bitcoin through a traditional finance wrapper for the first time.  

 “Ultimately, spot bitcoin ETFs will widen crypto access to new classes of investors,” David Duong, head of institutional research at Coinbase, wrote in the report. “ETFs will ease the restrictions for large money managers and institutions to buy and hold bitcoin, which will improve liquidity and price discovery for all market participants.”  

The report also noted that a spot bitcoin ETF may generate the creation of new technological products, such as lending, futures and options.

“If that materializes, it can multiply the existing crypto offerings for accredited investors and widely expand adoption,” Duong said. 

Financial advisors have commonly avoided cryptocurrencies because of their volatility and because of the high-profile implosions of fraudulent companies in the industry. Yet, prospective spot bitcoin ETF issuers are now increasingly banking on the structure of an exchange-traded fund to provide enough liquidity and regulatory oversight for advisors to begin dipping their toes into crypto waters.  

While the Securities and Exchange Commission allows ETFs to track cryptocurrency futures—the largest being the Proshares Bitcoin Strategy ETF (BITO)—the agency has rejected ETF applications backed by physical bitcoin. In recent months, however, the tides have started to turn following the SEC’s loss of a watershed lawsuit to Grayscale Investments, in which a federal court ruled that the agency erred in blocking Grayscale's application to convert its bitcoin trust into an ETF. 

Spot Bitcoin ETF Timeline 

Investors are optimistic a spot bitcoin ETF will be approved imminently. Ark Invest and 21Share’s so-called “spotcoin” fund is slated to be approved or denied for the final time on or before a Jan. 10 deadline; analysts from Bloomberg Intelligence estimate the odds of approval to be 90%.  

The next expected final deadline will be Bitwise Investment Management’s approval date on March 14, 2024.  

However, investors topping ETF issuers such as Cathie Wood and Matt Hougan predict the SEC will approve multiple firms concurrently.  

Note: Corrects name of David Duong in third paragraph.

 Contact Lucy Brewster at [email protected].