Popular Science: A Brief Analysis of the Differences Between BTC Spot and ETF
BTC spot ETF market = BTC spot marketOriginal author: TVBee
Editor's note: As 2023 comes to a close, the approval of a Bitcoin spot ETF by the U.S. SEC is a topic of great interest to every crypto user as we welcome the new year. Crypto blogger TVBee has explained the differences between three types of BTC ETFs on X, summarized by BlockBeats as follows:
What are the differences in BTC spot ETFs ------ A chart to help you understand 3 types of BTC ETFs & 3 types of BTC futures
Let's start with some basics
About BTC Futures
Currently, the mainstream BTC futures include three types:
First: Perpetual futures on platforms like Binance and OKEx.
Second: BTC futures from CME, which are cash-settled, so apart from having a settlement cycle, they are quite similar to the first type.
Third: BTC futures from BAKKT, which are settled in spot.
About BTC Futures ETFs
Currently, the vast majority of BTC futures ETFs are based on CME's BTC futures.
About ETFs
ETF (Exchange Traded Fund) is a fund traded on an exchange.
ETFs can be created based on a basket of assets or a specific asset, which we can refer to as the underlying assets.
ETFs represent a portion of ownership in the underlying assets. This means that ETF products support redemption, allowing the ETF to be exchanged for an equivalent value of the underlying assets.
Therefore, ETF products cannot be issued out of thin air. The issuer needs to hold an equivalent value of the underlying assets to issue an ETF.
3 Types of BTC ETFs
Based on BTC Spot ETFs
Many friends believe that BTC spot ETFs are a positive development, and this view is correct.
However, some friends understand it as: "Spot ETFs and futures ETFs are different; futures ETFs can be approved, but spot ETFs have not been approved due to regulatory reasons. Therefore, when the BTC spot ETF is approved, it indicates that BTC has received regulatory recognition, which is positive for BTC." This perspective is not entirely wrong, but it is incomplete.
The spot ETFs from institutions like BlackRock could be the biggest substantive benefit for BTC in history.
Because issuing ETF products requires holding an equivalent value of the underlying assets. To issue a BTC spot ETF, one must hold an equivalent amount of BTC in spot. Therefore:
BTC Spot ETF Market = BTC Spot Market
In other words, global large-scale financial institutions like BlackRock are likely to attract new BTC investors who have not participated in the existing crypto market. These investors are more accustomed to, or restricted by regulatory conditions, and can only purchase ETF products issued by institutions. The greater the market demand for BTC spot ETFs, the more BTC spot institutions will need to hold.
Thus, large financial institutions issuing BTC spot ETF products can bring incremental funds and a broader international market to the BTC spot.
The BTC spot ETF market in Hong Kong can also expand BTC's presence in the Asian market.
Based on BTC Futures ETFs
Currently, several financial institutions have issued BTC futures ETF products, but these BTC futures ETFs are based on CME's BTC futures, which are cash-settled. Therefore, the BTC futures ETF market cannot bring incremental funds to the BTC spot market.
Based on Cash BTC
Cash-based BTC ETFs involve the issuing institution holding cash to issue BTC ETFs, redeeming cash upon redemption. Naturally, this will not bring capital flow to the BTC spot market.
