The acceptance of BTC ETF (Exchange-Traded Fund) is one of the most anticipated events in the world of crypto. With it, financial giants such as Grayscale, Fidelity, and BlackRock, among others, will officially enter the crypto market.
Some specialists believe it will boost the crypto mass adoption, while others are afraid that it will harm one of the main principles of crypto - decentralization.
Let’s explore the impact that BTC ETF may have on the market, its pros and cons, and whether it has any negative impact on Bitcoin decentralization.
Bitcoin Spot ETF: What It Is, Pros and Cons
A Bitcoin exchange-traded fund (BTC ETF) is a financial product that allows investors and traders to trade the asset, in this case Bitcoin, without owning the actual asset.
Shares of BTC ETF will be traded on traditional stock exchanges which will expand the crypto reach. It will make it easier for traditional investors to delve into the world of crypto without actually having to buy cryptocurrency.
Bitcoin ETF has already generated significant interest from retail and institutional investors because this instrument allows them to invest in Bitcoin with fewer risks. This way of investment is also more regulated than any traditional way of interacting with the main cryptocurrency. This option will be perfect for those who are hesitant to buy crypto due to issues and concerns about security, technical complexities, and regulatory issues that may arise with such an investment type.
Pros of Bitcoin ETFs
Bitcoin ETFs are going to deliver significant advantages to traders and investors. The main ones are the following.
Ease of access
ETFs are traded on traditional exchanges. It makes it easy for traditional investors to buy, sell, and hold related assets through a brokerage account. This is especially attractive to investors and traders who aren’t familiar with cryptocurrency exchanges or are hesitant to use them.
Regulation
Bitcoin ETF is going to be subject to regulatory oversight. Thus, investors will get the level of protection they get when dealing with traditional assets.
Portfolio diversification
With BTC ETF, traditional investors can introduce cryptocurrency to their investment portfolio. By doing so, they don’t have to buy and hold the actual asset.
Mainstream adoption
The acceptance of BTC ETF can be considered the integration of cryptocurrency into the traditional financial system and thus lead to the crypto mass adoption.
Cons of Bitcoin ETFs
Along with benefits, Bitcoin ETFs will come with some drawbacks. Even though the pros are very attractive, one should understand the connected risks and challenges before delving into the BTC ETF investment.
The major disadvantages of BTC ETF are the following.
Fees are higher
Investing in BTC ETF may be higher than investing in traditional assets or buying BTC directly. By purchasing crypto, you pay only blockchain fees. But when you purchase ETFs, you pay not only blockchain fees but also brokerage fees and the fund’s expense ratio.
Ownership lack
When you buy crypto, you own it. But when investing in an ETF, you don’t own the asset.
No control over your funds
Storing crypto in your wallet gives you full control over your funds. However, things are different when you invest in an ETF. You don’t own crypto and thus, you rely on the fund to control and manage your funds.
Is BTC ETF Endangering the Bitcoin Decentralization?
Even though overall, the idea of BTC ETF sounds attractive, some experts believe that its acceptance may lead to the loss of decentralization of the main cryptocurrency.
Indeed, Bitcoin was created with a very specific vision: a decentralized peer-to-peer financial ecosystem. It had to enable individuals to transact without intermediaries.
But the big financial companies that are going to enter the game don’t share this vision.
Such institutions won’t hold Bitcoin, they would rather rely on custodial services, security, and compliance. Thus, it is going to give the raise of “paper Bitcoin”, a representation of ownership. It would create claims on Bitcoin that already exist, and the scenario will look like the one of traditional banking where only a small part of the actual asset can back the issued claims. Thus, if a lot of investors decide to claim the underlying asset simultaneously, it may lead to a liquidity crisis.
Bottom Line
Thus, while there is no actual threat to Bitcoin decentralization, the approval of BTC ETF is expected to bring not only benefits but also challenges. But doesn’t matter how the situation develops, the BTC ETF approval also means Bitcoin acceptance by regulators and the major financial players. It, in turn, will attract more users, boost the interest in crypto, and thus, have an overall positive impact on the industry.