On Tuesday, the SEC tweeted that a Bitcoin exchange-traded fund (ETF) had been approved. But wait! The account was hacked, and Chair Gary Gensler quickly declared the news false. Comedically, it was then announced the very next day that 11 Bitcoin ETFs had been approved. This week in The Context, we look at whether a Bitcoin ETF will be bullish or bearish for crypto.
[The Bull-y Pulpit 🐂]
An ETF is a security that can be traded on exchanges akin to a stock. A Bitcoin ETF, therefore, will be a way for many people in the U.S. to more or less buy BTC without having to go through crypto channels. 📺 So, is that a good thing?
What Journalists Said 🧑💻:
“The bull case around an ETF boils down to legitimization,” argued Daniel Kuhn (CoinDesk). The world’s largest asset manager, BlackRock, has been publicly advocating for one. You don’t think that’s going to improve BTC’s reputation as an asset class?
The SEC’s imprimatur means bringing in new investors, said Ben Strack (Blockworks). In a recent survey, most financial advisors “said they were either unable to buy crypto for clients, or unsure whether they could.” Ninety percent of those interested in buying Bitcoin were waiting for an ETF to be approved. 🚏
But first, watch out for a price drop, wrote Helen Partz (Cointelegraph. 📉 Cathie Wood, CEO of ARK Invest, which filed for its own ETF, believes some investors will take profits as much of BTC’s recent price rise has been in anticipation of the SEC green light. 🪝 That said, “the long-term perspective is promising and more important.”
PR Perspective 🔎:
Institutions and accredited investors alike have been historically skeptical about how safe crypto would be in their portfolios. Because ETFs are a familiar financial tool, a door that was previously closed to these skeptics will now be open, potentially attracting institutional money. Traditional investment funds may choose to diversify their offerings to include these ETFs for their customers; even if small percentages were allocated, the impact on asset price could be significant.
[Bear Hands 🐻🖐️]
There’s more to Bitcoin than price. Could ETF adoption be a bad thing for the industry?
What Journalists Said 🧑💻:
Is this really what Satoshi Nakamoto intended? asked Daniel Kuhn (CoinDesk). With a higher price comes higher fees. “Wouldn’t many people eventually, simply be priced out — particularly those in the developing world bitcoiners want to ‘bank?’”
One prominent Bitcoiner, BitMEX co-founder Arthur Hayes, is worried that an ETF could choke the Bitcoin economy. “If too many people purchase Bitcoin ETF shares or other Bitcoin derivative products instead of actual Bitcoins,” detailed Thomas Carreras (DLNews), “the network will stop producing enough fees to sustain miners and their costly energy bills.”
Alright, I’ll grant that it’s a big deal, tweeted Camila Russo (The Defiant). But what about the crypto ethos of “pushing in the opposite (non custodial, permissionless) direction”? With ETFs available, “What incentive do investors now have to interact with crypto in a non-custodial way?”
PR Perspective 🔎:
The introduction of ETFs places serious pressure on Bitcoin’s original promise of delivering a decentralized, peer-to-peer financial system. Crypto proponents have yet to work out to how to evolve custodial practices without compromising Bitcoin's core principles of empowerment and autonomy.
[Fees ↔️]
Each financial firm that filed with the SEC is bullish on the prospects of an ETF for them. But first, they have to beat each other by offering competitive fees.
What Journalists Said🧑💻:
The likeliest scenario is that one firm emerges with 80+% market share, said Jeff John Roberts (Fortune). Grayscale could win big early but fade. Here’s why: “Customers who now own shares of its trust will automatically become owners of the Grayscale ETF. Better yet for Grayscale, many of those customers will be reluctant to ditch the company for another provider since doing so would force them to pay capital gains taxes. That’s why Grayscale plans to charge an eye-popping 1.5% fee for its Bitcoin ETF.”
Just about everyone else is revising fees downward to less than a fifth of that, wrote Katie Greifeld (Bloomberg). Invesco and Bitwise even have “initial sweetener of zero fees for the first six months or until the fund reaches a certain asset threshold.”
The fee cuts came hours after everyone’s fees were announced, “a sign of just how brutal the battle to accumulate assets will be,” wrote Helene Braun (CoinDesk). While Grayscale “stands its ground” for now, experts say it’s easier for the firm to lower fees later than to raise them.
PR Perspective 🔎:
The fee war emerges as a pivotal battleground for differentiation. 🪖 Grayscale's bold fee stance acknowledges the potential for future adjustments, while competitors strategically position themselves with initial incentives. Now that we have approvals for the first Bitcoin ETFs, the ability to navigate and communicate competitive fee structures will be instrumental in shaping their success.
[Tweet Of The Week]
Credit: @WatcherGuru
[TradFi Translations]
A segment exploring one particular aspect of TradFi. This week, in the spirit of crypto’s ETF day celebrations, we’ll be running back an older translation.
This week: ‘Exchange Traded Funds (ETFs)’ by Vashundara Singh.
A cryptocurrency Exchange Traded Fund (ETF) is a type of investment fund that enables investors to gain exposure to various cryptocurrencies without having to directly buy and store the digital assets themselves.
Similar to traditional ETFs, a crypto ETF pools funds from multiple investors and uses these funds to invest in a diversified portfolio of cryptocurrencies. The ETF is then listed and traded on traditional stock exchanges, providing investors with a convenient way to buy and sell shares in the fund just like they would with any other stock.
The advantage of a crypto ETF lies in its simplicity and accessibility. Instead of dealing with the complexities of purchasing and securing individual cryptocurrencies, investors can rely on the expertise of the ETF managers to manage the crypto assets. Furthermore, it offers a level of regulatory oversight and transparency, which can be reassuring for more risk-averse investors. With leading global asset management firms such as BlackRock and Fidelity filing bitcoin ETF applications, it will be very interesting to see how it plays out. If approved, these ETF’s will help improve consumer confidence in crypto while opening up new DeFi avenues for crypto projects. A positive public and government reaction to ETF’s will also boost bitcoin liquidity and bullishly impact prices.
The usual disclaimer: This newsletter collates the main themes and headlines of the week in DeFi/crypto/metaverse/Web3/NFT land and tries to provide unbiased context. It's aimed at anyone who wants to keep an eye on the space. It's put together by a team at YAP and doesn't contain any promotion of our clients (if one is mentioned, we'll flag that).
The team: Founder Samantha Yap and consulting editor Jeff Benson, Sam O'Donohoe, Ewan Brewster, Andrew Wickerson, Tiffany Mac Sherry, Liam Quinn, Becky Corbel and Delon Chan. Your feedback is, as always, welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
This newsletter is prepared by YAP Global, an international P.R. Consultancy focusing on helping cryptocurrency, Decentralised Finance (DeFi) and brands through impactful storytelling. Find out more about us here.