Bitcoin ETFs and the Implications for the future of blockchain-powered applications

By Vanessa Malone

Last week on January 10th, the U.S. Securities and Exchange Commission granted approval for the first-ever U.S.-listed exchange-traded funds (ETFs) designed to track the performance of bitcoin. The SEC has approved 11 applications,¹ including BlackRock, Ark Investments/21Shares, Bitwise, Fidelity, Grayscale, Invesco and VanEck.

This development is widely regarded within the industry as a significant and pivotal moment for the cryptocurrency and greater blockchain sector. What are bitcoin ETFs and the implications this regulatory decision could have for the industry?

First, it’s important to note that Upstream, a MERJ Exchange market, is not a cryptocurrency market and does not allow account funding via Bitcoin or crypto trading. Upstream is a securities trading venue powered by smart-contract technology.

With that, let’s dive in.

What is a spot bitcoin ETF?

An exchange-traded fund (ETF) is a publicly traded investment vehicle that tracks the value of an underlying asset.² A spot bitcoin ETF is an investment vehicle that provides ordinary investors exposure to the price moves of bitcoin from their regular brokerage accounts.³ The purpose of this kind of ETF is to mirror the price of bitcoins in the crypto market so investors can get exposure to bitcoin without going through the process of opening an account on a crypto exchange, creating a digital wallet, connecting the two, and holding their own crypto.

Spot bitcoin ETFs securely hold bitcoins in a secure digital vault, which registered custodians manage. The ETF creates shares based on a specific amount of bitcoins it possesses, with the share price reflecting the current market value of the cryptocurrency. These shares are publicly traded on regular stock exchanges, aiming to closely follow Bitcoin’s price, and the ETF adjusts its holdings periodically by buying or selling tokens. Spot bitcoin ETFs directly hold bitcoins, while derivatives-based bitcoin ETFs use financial tools such as futures contracts to replicate the prices of bitcoin.⁴

What is the significance of this regulatory approval?

The recent approval of bitcoin ETFs marks a significant milestone in the cryptocurrency landscape, ushering in a new era of more regulatory clarity.

While industry thought-leaders have been highly anticipating digital currency ETFs, approval for a bitcoin ETF has been in the works for more than 10 years, with one of the first applications coming in 2013.⁵

This, along with SEC Chairman Gary Gensler’s more critical stance on cryptocurrencies, lends additional credibility to the approval of bitcoin ERFs and the idea of cryptocurrency as a legitimate asset class.

According to an interview from CNBC with Coinbase CEO, Brian Armstrong, 52 million Americans already use crypto.⁶ This is despite the barriers to entry which include the complexities of crypto exchanges, digital wallets, and private keys which can be intimidating to some.

Source: CNBC

A bitcoin ETF removes some of these barriers, bringing digital currency to both retail investors and institutions who can gain exposure to this asset class through traditional brokerage accounts. As also stated by Armstrong in the CNBC interview, this move is expected to inject significant liquidity into the sector.

What could this mean for the future of blockchain as a whole?

As a smart-contract powered market and trading app, Upstream finds the news very promising. This development not only provides investors with a more accessible avenue to participate in the crypto market but also has broader implications for the adoption of blockchain technology.

With clearer regulations in place, market participants may find themselves more comfortable exploring the benefits of smart-contract powered applications. The trust instilled by the approval of bitcoin ETFs could lead to increased confidence in utilizing blockchain-powered markets, such as Upstream, where the benefits of decentralized technology are harnessed to create a more seamless and secure securities trading experience for issuers and investors.

Upstream, a MERJ Exchange market is not a cryptocurrency market but a stock market and trading app powered by Ethereum smart-contract technology. The app-based marketplace facilitates real-time trading and instant settlement and offers issuers around the globe opportunities to dual-list, launch IPOs, fund celebrity ventures, create spin-offs, and more. Addressing some of the common barriers described above that may have blocked investors from Bitcoin, Upstream makes securities trading as simple and familiar as downloading an app, signing up, completing light-touch KYC, then funding the account with a credit card, debit card, PayPal, or USDC stablecoin.

All blockchain technology and digital wallet creation happens under the hood but issuers can benefit from accessing a global, digital-first investor base that can access their company shares from anywhere using a trading app.

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Decrypt | 2 Decrypt | 3 Investopedia| 4 Investopedia | 5 Reuters | 6 CNBC


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