In this episode of Yahoo Finance Future Focus, our host Brian McGleenon explains what a spot bitcoin ETF is and how it differs from other investments. Spot bitcoin exchange-traded funds (ETFs) have emerged as a transformative tool in the crypto market, offering investors a straightforward means to gain exposure to bitcoin's price movements. Unlike derivatives-based ETFs, spot bitcoin ETFs directly invest in bitcoin, mirroring its current price. With each ETF share corresponding to a specific amount of bitcoin held in reserve, these funds provide a regulated and secure gateway for both individual and institutional investors to participate in the crypto market. The recent approval of several spot bitcoin ETFs by the US Securities and Exchange Commission (SEC) in January has fueled a notable surge in bitcoin's price. Increased inflows from major fund managers like BlackRock and Franklin Templeton have further bolstered bitcoin's rally, highlighting the growing significance of spot bitcoin ETFs in shaping the cryptocurrency landscape.
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00:00 Welcome to Yahoo Finance Future Focus.
00:07 The Bitcoin price has rallied since the approval of multiple spot Bitcoin exchange-traded funds
00:13 or ETFs by the US Securities and Exchange Commission in January.
00:18 But what exactly is a spot Bitcoin ETF and why has it caused the price of Bitcoin to
00:23 surge?
00:25 So, spot Bitcoin ETFs operate in much the same way as a traditional ETF, but instead
00:32 of tracking a basket of stocks, for instance, spot Bitcoin ETFs track the current price
00:36 of Bitcoin.
00:37 Now, each share of the ETF sold corresponds to an equivalent amount of actual Bitcoin
00:43 held in reserve.
00:44 There are currently 11 spot Bitcoin ETFs in existence, offered by fund managers such as
00:49 BlackRock, Fidelity and Franklin Templeton.
00:53 These managers work with authorised participants who purchase Bitcoin for the ETF.
00:58 The acquired Bitcoin is then held in digital wallets by custodians such as Coinbase.
01:05 Each ETF issues shares representing the purchased Bitcoin, which are matched to the current
01:11 spot price of the underlying asset.
01:13 Now, these shares can be bought and sold on traditional stock exchanges, making it easier
01:18 for both regular investors and big institutions to invest in Bitcoin without actually owning
01:24 it directly.
01:25 For instance, BlackRock's iShares Bitcoin Trust ETF is listed on the Nasdaq, whilst
01:31 Fidelity's FidelityWise Origin Bitcoin BTC Fund is listed on the New York Stock Exchange.
01:37 This setup allows investors to gain exposure to Bitcoin without needing to directly manage
01:42 digital wallets or store private keys, which can be complex and risky for some investors.
01:50 Now, all of these dynamics have had an effect on the price of Bitcoin since the SEC's approval
01:56 of the ETFs in January of this year.
01:59 In the short term, increased institutional investment through spot ETFs has driven up
02:04 demand for Bitcoin, which has caused the digital assets price to depreciate.
02:09 The recent approval of spot Bitcoin ETFs by the SEC has also marked a shift in how regulators
02:14 view cryptocurrencies and given a certain level of legitimacy to Bitcoin as an asset
02:19 class and increased liquidity in the Bitcoin market overall.
02:23 Now, the UK's financial regulator, the Financial Conduct Authority, seems to be following in
02:29 the wake of its US counterpart after making a recent statement that it intends to allow
02:34 Bitcoin-backed exchange-traded notes, or ETNs, specifically for professional investors.
02:41 However, it's always essential to note that investing in Bitcoin and spot ETFs comes with
02:47 its risks.
02:48 Investors should be cautious and aware of the volatility associated with Bitcoin.
02:53 Additionally, investors don't actually take custody of the Bitcoin when investing in spot
02:57 ETFs, instead they rely on third-party custodians.
03:01 And as always, investors should be careful to consider their risk tolerance before investing
03:06 in these recently approved products.
03:09 Thanks for joining us.
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