Monika Calay explains why the approval of a spot Bitcoin ETF is significant for investors beyond the US, but warns investors of volatility and risk
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Welcome to Morningstar. Last night the US SSI approved 11 spot Bitcoin ETF, which feels like a big moment for the cryptocurrency industry. But what does this mean for ETFs and what does this mean for UK and European investors? With me today is Monika Calay, Director of Passive Strategies Research at Morningstar.
Monica, thank you for being here. This feels like a big moment, like I said, but what is really the difference between this new spot Bitcoin ETF and the exchange traded products within crypto that already exist? Sure. So the primary difference between a spot ETF and other crypto
ETFs lies in the assets they hold and how they attract their value. A spot ETF like the recently approved spot Bitcoin ETF primary primarily holds the actual cryptocurrency itself, such as Bitcoin. It physically owns and stores bitcoin and the ETF’s. Value is directly tied to the real time market price of bitcoin.
So when you invest in the spot ETF, you’re essentially owning a share of the cryptocurrency itself and its performance closely mirrors the price movement of that cryptocurrency minus fees and trading costs. But this is not the only way investors can access exposure to the cryptocurrency market.
For example, some crypto ETFs may invest in cryptocurrency related products such as futures contracts, options, or even shares of companies related to the cryptocurrency industry. But compared to these structures, spot Bitcoin ETFs are an immediate improvement in purity of Bitcoin exposure. So. So this story. Recently it’s been largely a regulatory one,
So it’s now been approved in the US. But what does it look like in the UK and in Europe more widely? Is this something you think the regulators are going to follow? Well, Europe has taken a significant lead in the crypto ETP market in countries like Switzerland, Germany and France,
Where regulatory frameworks have paved the way for crypto adoption. In fact, just last year we witnessed the debut of the first EU spot Bitcoin ETF, the Jacoby Wilshire Bitcoin ETF, which listed on the Euronext stock Exchange in Amsterdam. But it’s important to note that regulatory approaches can vary across different European regions.
In the UK. For instance, the FCA implemented comprehensive regulations classifying Bitcoin and other cryptocurrencies as, so to speak, restricted mass market investments. So these regulations include restrictions on offering derivatives or exchange traded products tied to specific crypto assets to retail consumers.
So while Europe is leading the way, the potential adoption of similar measures by the UK and other European nations remains a topic of interest and I think monitoring how these regions navigate the crypto investment landscape will be interesting the in the following year.
So who are these products really aimed at then and for investors in in Europe? What sort of ETP should they be looking for? So investors in crypto ETPs should be aware that crypto markets are known for their volatility. Our research has shown that crypto ETPs may not provide protection against equity
Market downturns and they’re not reliable hedges against inflation. As always, we encourage our clients to exercise due diligence and to carefully evaluate the suitability of crypto ETPs within their investment portfolios. Caution and a clear understanding of risks are key. Thank you very much for joining today, Monika. For Morningstar, I’m Sunniva Kolostyak
8 Comments
Morningstar shouldn't be talking about UK and Europe so interchangeably. The UK banned all crypto derivatives a couple of years ago including ETFs. They literally forced all brokers to liquidate leveraged positions and any holdings in European-based crypto ETFs (that you were able to invest in via a UK broker). It was either owning the direct asset or nothing.
Im putting everything I got in the ETFs LFG!!!! 🎉
Bitcoin won't be going to the Moon any time soon 🎉
I am very pro-Bitcoin. I own and self custody it and also now have ARKB. You should not be holding either if you think you might need to sell to feed your family. You do not want to take the risk of volatility to meet family demands. This investment class should only be acquired if you have the ability to wait until the next bull cycle to sell.
MYRO
So basically, the FCA is shafting all UK retail investors wishing exposure to BTC via a tax shielding wrapper, aka an ISA. It's about time they treated us like adults and allow us to make our own decisions. There is so much hypocrisy – out of one corner of the regulator / Gov mouth we hear "crypto bad…criminal use…blah blah blah" and from the other side it's " … we're happy to tax you on any gains you might make and prevent you from legitimate shielding of such gains within an ISA.." Tiresome nanny state antics.
1:07
When you invest in a spot ETF, you do NOT own a share of the underlying asset (the cryptocurrency).
You own a share of the pool that holds the underlying asset, in the very slim chance that the issuer commits fraud or other ways that the NAV deviates from the market cap, you are NOT going to automatically be given the underlying asset.
If you read the prospectus, it stated explicitly that the issuer reserves the right to withhold the underlying asset, it's likely not going to happen, but the probability isn't zero.
>Great content. Technical Analysis is good but I find It truly baffling that major crypto youtubers just look mostly at pure T.A and completely ignore the bigger narrative of why BTC is pumping and why the future outlook will be even rosier than it seems. It's kinder irresponsible to ignore the fact that each ETF launch so far has caused a major pump at the peaks of BTC. More emphasis should be put into day trading as it is ^less affected by the unpredictable nature of the market. I have made over 13 btc from day trading with Kristin Stones insights and signals. this is one of the best medium to backup your assets incase it goes bearish…