Bitcoin ETFs have been recognized by governments in major crypto-friendly countries since the US government approved the first US Bitcoin futures ETFs in 2021. Now, the US Securities and Exchange Commission (SEC) has approved Bitcoin ETFs for listing on major US exchanges like NASDAQ and NYSE. These ETFs can now be bought and sold like Apple or Tesla shares!
Not everyone has the money to buy cryptocurrencies or build a wallet full of tokens. Isn’t it? Here is where ETFs help you to overcome the hurdles of investing directly in one crypto.
Consider Exchange-Traded Funds (ETFs) as a shopping basket: instead of buying each fruit one by one, you can get the whole basket at one go. Similarly, a crypto ETF is like a basket of digital assets: instead of purchasing each cryptocurrency individually, investors can buy shares that represent the whole collection.
Investors can buy and sell crypto ETF shares on an exchange at market prices.
Bitcoin ETFs experience increasing demand
Besides the SEC’s approval, growing demand for Bitcoin ETFs is driven by BlackRock’s iShares Bitcoin Trust, Fidelity’s Wise Origin Bitcoin Fund, and Bitwise’s Bitwise Bitcoin ETF — some of the top spot Bitcoin ETFs in the US.
Sharing her concerns over Bitcoin ETFs, the SEC Commissioner, Caroline Crenshaw, once noted: “I am concerned that these products will flood the markets and land squarely in the retirement accounts of U.S. households who can least afford to lose their savings to the fraud and manipulation that appears prevalent in the spot bitcoin markets.”
For economist Carol Alexander, a Bitcoin ETF is an excellent thing for Bitcoin bulls in the short term. “I’ve never been as bullish as this”.
As Bitcoin ETFs increase in demand and traditional exchanges list them, there are two debatable questions we need to look at:
Are Bitcoin ETFs a secure and reliable way for traditional exchanges like the NYSE and NASDAQ (traditional finance)? Or are they a risky and unstable path?
How can Bitcoin ETFs transform traditional exchanges?
Growth in volumes and liquidity
Listing Bitcoin ETFs can lead to increased trading activity on NASDAQ and NYSE, as crypto remains one of the closely watched assets. Institutional investors, who once stayed away from ETFs, can now access them through exchanges.
More institutional inflow means high trading volume and liquidity.
Competition and Innovation hike
NASDAQ and NYSE compete to innovate their platforms, adding new features. By offering Bitcoin ETFs, they stand at the forefront of financial innovation by attracting crypto investors and staying relevant in the era of decentralized finance.
New revenue generation
Embracing Bitcoin ETFs means, traditional exchanges get access to a new revenue stream. When equities go down in severe macroeconomic conditions, investors tend to turn to crypto. Although this is a rare case, traditional exchanges can get revenue out of crypto.
Greater regulatory responsibilities
NASDAQ and NYSE already have mechanisms to detect manipulation, fraud, and unusual activities in equities. Listing crypto ETFs can add more complexities, as exchanges will need to coordinate with crypto regulators to enhance security over investor funds.
But there are hidden risks for traditional exchanges
Although ETFs offer several advantages, there is a twist: when traditional exchanges launch crypto ETFs, they make the coin look safer.
- Crypto market volatility – The volatile nature of crypto like Bitcoin can bring increased instability in ETF-related trading volumes.
- Reputational risk – Volatility and sudden crash can also affect the reputation of exchanges, as investors may associate the price collapse with he exchanges listing the ETFs.
- Operation risks – Exchanges integrate reliable systems for pricing, trading, and settling transactions. If any of these steps fail, it can damage the credibility of the exchange.
Why ETFs can calm crypto’s volatile nature
Regulated access
ETFs do not require the hassle of directly holding a cryptocurrency — you no longer need to create a wallet, save seed phrases, or risk losing coins. Big institutions like BlackRock will handle your crypto funds.
Transparent regulations
The SEC’s regulatory oversight enhances clear rules for Bitcoin ETFs, and more investors find it reliable.
Legitimacy
As the stamp of regulatory approval smoothens speculative mania, Bitcoin ETFs act like less volatile, encouraging more investors to go into ETF mania.
Why investors like Bitcoin ETFs?
The answer to this question is quite simple: greater accessibility. No need for learning blockchain basics or holding a crypto wallet. As mentioned above, regulations also play a key role in hooking more investors into ETFs.
Moreover, there is good liquidity as buying and selling of Bitcoin ETFs is simple on big exchanges. Furthermore, crypto ETFs can be added to retirement accounts and portfolios, demonstrating greater integration.
A few things that you need to note down are:
- You cannot own an actual Bitcoin in Bitcoin ETFs.
- You cannot use ETF shares for payments or move into a crypto wallet.
- Crypto ETFs are merely for investment and saving.
Bottom Line
Bitcoin ETFs are a major success for several TradFi exchanges. They allow investors to access Bitcoin without worrying about how to handle it. For exchanges like NASDAQ and NYSE, the move ensures fresh liquidity and high trading volume, new investors, and innovation-fueled growth.
Yet, beneath the shine lie risks over volatility, reputation, and operational complexities that even test the strongest financial firms. The reality is: if Bitcoin surges, traditional exchanges celebrate, and if it collapses, traditional exchanges weaken.
