The European Securities and Markets Authority (ESMA) has recently approved the first spot bitcoin exchange-traded fund (ETF) in Europe, paving the way for more institutional investors to enter the crypto market. The spot bitcoin ETF, which will track the price of bitcoin directly rather than through derivatives or trusts, is expected to launch in early 2024 on the Euronext Paris and Amsterdam exchanges. This means that investors can now buy and sell shares of a fund that tracks the price of bitcoin without having to deal with the complexities and risks of owning and storing the cryptocurrency directly.
The ETF, called Bitcoin ETP, is issued by 21Shares AG, a Swiss-based firm that specializes in crypto financial products. It will be listed on the SIX Swiss Exchange, the largest stock exchange in Switzerland, and will have a management fee of 1.49% per year. The fund will be fully backed by physical bitcoins held in cold storage by a custodian and will be audited by a reputable accounting firm.
The approval of the Bitcoin ETP is a significant development for the crypto space, as it opens up a new avenue for institutional and retail investors to gain exposure to bitcoin. Unlike other crypto products that use derivatives or futures contracts to track the price of bitcoin, the Bitcoin ETP will reflect the actual spot price of bitcoin, which is determined by supply and demand in the market. This means that investors will not have to worry about issues such as rollover costs, contango, or tracking errors that can affect the performance of other crypto products.
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This is a significant development for the crypto industry, as it will provide more liquidity, transparency and regulatory oversight for bitcoin trading in Europe. Unlike previous attempts to launch bitcoin ETFs in other jurisdictions, such as the US and Canada, the spot bitcoin ETF will not incur any additional fees or risks associated with futures contracts or third-party custodians. Instead, the ETF will hold physical bitcoins in cold storage, ensuring that investors have full exposure to the underlying asset.
The approval of the spot bitcoin ETF also reflects the growing recognition and acceptance of crypto assets by European regulators and policymakers. In September 2020, the European Commission proposed a comprehensive framework for regulating crypto assets, known as the Markets in Crypto-Assets Regulation (MiCA). The MiCA aims to harmonize the rules and standards for crypto assets across the EU, while ensuring consumer protection, market integrity and financial stability. The MiCA is expected to be adopted by the end of 2023, coinciding with the launch of the spot bitcoin ETF.
The spot bitcoin ETF will likely attract more institutional investors to the crypto market, as it will offer them a convenient and secure way to gain exposure to bitcoin without having to deal with the technical and operational challenges of buying and storing crypto assets directly. Moreover, the spot bitcoin ETF will benefit from the high liquidity and efficiency of the Euronext exchanges, which are among the largest and most reputable in Europe. The spot bitcoin ETF will also have a competitive edge over other crypto products, such as Grayscale’s Bitcoin Trust (GBTC) or CoinShares’ Bitcoin ETP (BTCE), which trade at a premium or discount to the net asset value (NAV) of their underlying assets.
The spot bitcoin ETF could also have a positive impact on the price and adoption of bitcoin, as it will increase the demand and supply of the cryptocurrency in the market. According to some estimates, if a similar spot bitcoin ETF were approved in the US, it could boost the price of bitcoin by 10% to 15% in the short term, and by 40% to 60% in the long term. Furthermore, the spot bitcoin ETF could also increase the awareness and education of crypto assets among retail investors, who may be more familiar and comfortable with investing in ETFs than in crypto platforms or wallets.
The Bitcoin ETP is also expected to boost the liquidity and adoption of bitcoin, as it will make it easier and cheaper for investors to access the cryptocurrency. By buying shares of the ETF, investors can avoid the hassle of setting up a crypto wallet, buying bitcoins from an exchange, and transferring them to a secure storage. They can also benefit from the regulatory oversight and transparency that comes with investing in a regulated fund.
The approval of the Bitcoin ETP in Europe is a sign that regulators are becoming more open and supportive of crypto innovation. It also shows that there is a strong demand and interest for crypto products among investors. The Bitcoin ETP could pave the way for more spot ETFs based on other cryptocurrencies, such as ethereum, litecoin, or polkadot, as well as for more crypto products in other regions, such as North America or Asia.
The Bitcoin ETP is a game-changer for the crypto industry, as it offers a simple and convenient way for investors to access the most popular and valuable cryptocurrency in the world. It is also a testament to the maturity and growth of the crypto space, as it demonstrates that crypto assets can meet the high standards and requirements of regulators and investors alike.