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The potential approval of spot Bitcoin exchange-traded funds (ETFs) has created waves of excitement in the financial world, with many experts predicting an increase in institutional investment in the world’s leading cryptocurrency. Also, The Chicago Board Options Exchange (CBOE), the largest options exchange in the United States, is one of the most vocal advocates of Bitcoin ETFs, and its chairman, John Palmer, has stated that their approval would “open the floodgates to a new wave of institutional and ultimately retail investors into Bitcoin derivatives.”
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Palmer’s optimism stems from the fact that most traditional investment vehicles, such as pension funds and RIA-based funds, are currently unable to gain direct exposure to Bitcoin due to regulatory hurdles. A spot ETF would provide these institutions with a safe and familiar way to invest in the asset, potentially unlocking billions of dollars of new capital.
“Approval would pave the way for pension funds and RIA-based funds to invest in the underlying assets of a spot Bitcoin ETF,” Palmer said in a recent interview. “It’s going to be hard to predict exactly what the investor distribution is going to be,” he added, noting that institutions typically lead the adoption of new investment products. “But retail will be looking for it as well.”
Beyond Bitcoin: The Rise of Crypto Derivatives
The potential approval of a spot ETF is also expected to have a significant impact on the Bitcoin derivatives market. Also, Palmer believes that institutional investors will increasingly turn to derivative products to hedge their exposure to Bitcoin, leading to an increase in trading volume and the development of new and innovative products.
“Institutional players are inevitably going to become more reliant on these derivatives for risk management,” Palmer said. “I think you’re going to see a lot more innovation in the derivatives space and a lot more liquidity.”
Some investment firms are already preparing for the potential influx of institutional capital into the Bitcoin market. Investment fund manager Advisors Preferred Trust updated its prospectus on January 2 to allow it to use up to 15% of the fund’s total assets to invest in Bitcoin through Grayscale Bitcoin Trust shares, ProShares Bitcoin Strategy ETF shares, and Bitcoin futures contracts.
This move shows that traditional asset managers are beginning to see the potential of Bitcoin and are eager to gain exposure to the asset once regulatory hurdles are cleared.
SEC is going to announce its decision on ARK Invest’s 21 Shares Bitcoin ETF application
The SEC’s decision on ARK Invest’s 21 Shares Bitcoin ETF application is due on January 10. While the outcome is uncertain, the growing chorus of support from major financial institutions is a sign of a turn in favor of Bitcoin ETFs. If approved, these products could serve as a gateway for institutional investors to enter the crypto market and pave the way for a new era of financial innovation.
It is worth noting that the approval of a spot Bitcoin ETF is not without its critics. Some argue that the underlying market is still too volatile and immature for institutional investment. Others worry that increased institutional participation could lead to manipulation and price bubbles.