By
Godfrey Benjamin
May 15th, 2024
The report acknowledges that physically-backed Bitcoin ETFs offer certain advantages over futures-based funds.
In a research report released on Thursday, JPMorgan Chase & Co (NYSE: JPM), one of the leading financial institutions in the world, believes that the approval of a spot Bitcoin Exchange-Traded Fund (ETF) by the United States Securities and Exchange Commission (SEC) would not have a transformative effect on the broader digital currency ecosystem.
The recent actions by BlackRock Inc (NYSE: BLK), Invesco Ltd (NYSE: IVZ), Fidelity Investments, and other asset managers to file for spot Bitcoin ETFs indeed reflect the growing interest and competition in the crypto space.
However, JPMorgan argues that the approval of a Bitcoin ETF may not automatically lead to a surge in investor participation or a significant shift in market dynamics as many have projected. The research highlights the lack of substantial investor interest in spot Bitcoin ETFs that have been available outside the United States, specifically in Canada and Europe.
Additionally, the report highlighted that Bitcoin funds in general, including both futures-based and physically backed funds, have experienced limited investor interest since the second quarter of 2021.
Furthermore, the report points out that Bitcoin funds have failed to benefit from investor outflows from gold-traded ETFs over the past year. Notably, Gold has traditionally been considered a safe-haven asset and a store of value, often attracting investors during times of economic uncertainty or market volatility.
The fact that Bitcoin funds have not been able to capture the investor outflows from gold ETFs suggests that there might be specific factors or preferences influencing investors’ decision-making processes.
Comparing Spot Bitcoin ETF to Future-Based Products
The report acknowledges that physically-backed Bitcoin ETFs offer certain advantages over futures-based funds, albeit relatively marginal ones.
It highlights that spot ETFs provide a more direct and secure method to gain exposure to Bitcoin, eliminating some complexities associated with the custody and transfer of Bitcoin. In contrast, futures-based products involve basis risk and may not offer the same level of direct ownership.
One of the key advantages mentioned is that spot ETFs are more likely to reflect real-time supply and demand dynamics. This means that the ETF’s price would closely mirror Bitcoin’s actual price changes. This feature improves price transparency in spot Bitcoin markets and may result in improved liquidity.
The approval of spot ETFs in the US, according to the report, would bring several benefits to the crypto market. It would enhance price transparency, as investors would have access to real-time pricing information through the ETF. This increased transparency could also contribute to more efficient price discovery in the spot Bitcoin markets.
However, the bank noted that the introduction of spot Bitcoin ETFs has the potential to redirect trading activity and liquidity away from the earlier approved US Bitcoin futures markets if spot ETFs replace futures-based alternatives.
Remarkably, the coexistence of both spot ETFs and futures-based products remains a possibility, as they may serve different purposes and appeal to different types of investors.