Bitcoin ETFs, the keys to this new financial product

In early January, the U.S. Securities and Exchange Commission, known as the SEC, cleared the way to spot Bitcoin ETFs, paving a before and after for this financial asset. “There is now a spot Bitcoin ETF in the United States, and Bitcoin is no longer considered suspect or infamous. This significantly changes the perception for the general public”, mentioned Kevin de Patoul, co-founder and CEO of Keyrock to CNBC. 

Besides the perception of the asset, with the advent of ETFs, mutual funds can include it in their portfolios, as well as pension funds. However, before mentioning its implications, it is necessary to review some of the main issues to clarify doubts and gain a full understanding of what is new in this new financial product.

ETFs are index funds backed by an underlying asset, which is Bitcoin in this case. When purchasing this ETF, you are not acquiring units of the cryptocurrency, but the exposure to the price of the cryptocurrency. It works in the same way as buying a gold ETF or any other commodity. In other words, you do not own the commodity itself, but you have exposure to the price of the commodity. Thus, the main difference between a Bitcoin ETF and real Bitcoin is that you do not own the cryptocurrency and its custody does not belong to the owner, but to the ETF manager. Likewise, payments cannot be made either, since the owner of an ETP does not own the cryptocurrency. 

Beyond considering what these ETFs are, the most relevant thing is the market implication they entail. For many investors, especially institutional investors, access to the crypto market becomes much easier. In regulatory terms, mutual funds and pension plans have the easiest path to acquire Bitcoin through these ETFs. 

ETFs open a new wave of interest among institutional investors due to these new acquisition facilities. Just a few days later, fund manager Advisors Preferred Trust changed its regulations to allow its funds to have up to 15% exposure to these ETFs.

An uncertainty hovering over the market is the acceptance of these ETFs among investors. Well, between January 11, 2024 and March 5, 2024, the total trading volume exceeded $47.7 billion, becoming the fastest growing ETF in history.

In fact, they were already holding 4% of the total amount of this cryptocurrency in circulation by the beginning of March. To put it in contrast, the iShares Core MSCI World, which is the largest ETF in Europe, holds €65 billion in assets. While the largest globally, the SPDR S&P 500 ETF Trust (SPY) manages over $500 billion. Bitcoin’s total capitalization is 1.3 trillion US dollars.

These ETFs approved by the SEC are only currently available in the United States. That is, European investors are still unable to access them due to regulations. However, this does not mean that there are no products indexed to Bitcoin as an underlying asset in Europe. In the old continent, there are 130 cryptocurrency ETPs (exchange traded products) listed on various stock exchanges, such as Euronext Paris, Euronext Amsterdam, XETRA and SIX Swiss Exchange. In fact, the largest of all, ETC Group Physical Bitcoin, has a market cap over 1.1 billion euros.

However, it is true that, due to European regulations, these products are not accessible to all types of investors, nor all brokers can offer them. The same applies to European institutional investment. The lack of regulations complicates the access and distribution of these products to retail and institutional investors.

The truth is that Switzerland not only has a highly advanced ‘blockchain’ ecosystem where there is clear, efficient and flexible regulation but BTC is considered legal tender in several cities across the country. 

The Swiss country is well positioned to lead the change. Thanks to the facilities it offers, it enabled the establishment of a network of cryptocurrency companies known as Crypto Valley, accustomed to cooperate with the traditional financial sector. Thus, Swiss indexed products provider 21Shares is a pioneer in the investment world in offering Bitcoin ETFs.

Backed by the guarantees of this operational framework, BBVA’s Swiss subsidiary can offer innovation, security and trust to clients who want to explore the world of investment in digital assets. Thus, BBVA in Switzerland integrated in 2021 the crypto trading and custody service to its banking offer for international private banking clients.