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Bitcoin ETFs Are Almost Here: What Investors Should Know

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Tyler and Cameron Winklevoss first filed for a spot Bitcoin ETF over a decade ago, when the cryptocurrency was trading below $100. It now seems that the SEC is finally gearing up to approve at least one, and possibly about a dozen, of these applications.

The approval could happen today, with these products potentially entering the market tomorrow. Bitcoin surged approximately 160% last year and is up about 5% this year, though it remains significantly below the record high of almost $69,000 reached in November 2021.

Experts anticipate billions of inflows into these products during the first year of trading, as they will “legitimize” crypto and position it as a mainstream institutional-grade investment. Currently, not many financial advisors have allocated crypto to client accounts, and ETFs are expected to offer a safe, low-cost, and convenient way to gain exposure to the asset class.

The ongoing price war among ETF providers has intensified, with several announcing price cuts since yesterday. Some products will charge zero fees for the initial months of trading or until they reach a specified asset level.

BlackRock (BLK - Free Report) , the world's largest fund manager, plans to charge customers only 0.12% for the first year or until its ETF reaches $5 billion in assets, after which it will charge 0.25%.

Investors are the biggest winners in this war. Additionally, these products are expected to trade with very tight spreads, increasing competition for crypto exchanges like Coinbase (COIN - Free Report) , where many retail trades can cost more than 1%, according to Barron’s.

Coinbase had jumped over 380% last year as it will serve as a custodian for many spot Bitcoin ETFs. Other crypto-related stocks like Marathon Digital (MARA - Free Report) and MicroStrategy (MSTR - Free Report) also soared.

ETFs possess a unique advantage over traditional mutual funds due to their creation and redemption mechanism, where authorized participants (APs) ensure liquidity and price efficiency.

While most ETFs use in-kind creation, Bitcoin ETFs, at the insistence of the SEC, will employ a cash creation and redemption mechanism initially. This is because APs, typically large banks, are not allowed to transact and hold Bitcoin under current regulations.

Experts believe that any premiums will likely be small, similar to products trading in Canada that use cash creation and redemption.

To learn more, please watch the short video above.

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