But not everyone agrees on the crypto ETF train. Critics argue that a bitcoin-linked ETF could be worse than the crypto market’s centralized exchanges. Their main beef? There is zero chance of the underlying instrument being withdrawn. This means that holders can never take advantage of one of Bitcoin’s most important features: the ability to control their funds without trusting anyone.
It’s not just talk. The potential of these investment vehicles has already been realized in markets such as Canada. For example, the Purpose Bitcoin ETF has attracted more than $400 million in assets under management in just two days of its launch. It is no longer a question of whether cryptocurrencies are an asset class or not.
It’s like the starting gun has been fired, and institutional investors have started to join the race, laying the groundwork for a massive shift in the financial landscape, and cryptocurrency ETFs are the starting point.
Crypto ETFs Trigger Domino Effect
ETFs are a huge business.blackrock alone manage As of the end of March 2023, ETF client assets of various stocks, bonds and commodities were about $3 trillion.
The approval of a cryptocurrency ETF not only signals mainstream acceptance, it could also drive market maturity, establish price stability, and foster innovation, creating an ETF for a broader range of digital assets and decentralized finance (DeFi) tokens, similar to 1993 The first ETF was approved, giving birth to today’s diverse ETFs.
related: BlackRock’s Misleading Effort to Create a ‘Cryptocurrency for Dummies’
But not everyone agrees on the crypto ETF train. Critics argue that a bitcoin-linked ETF could be worse than the crypto market’s centralized exchanges. Their main beef? There is zero chance of the underlying instrument being withdrawn. This means that holders can never take advantage of one of Bitcoin’s most important features: the ability to control their funds without trusting anyone.
Cryptocurrency ETFs have the potential to become as mainstream as stocks or bonds, and thus may appeal to a diverse group of investors. But what is the real disruptive factor? Institutional grade hosting.
Crypto ETF Scramble Boosts Institutional Custody
To be clear, it is not only the custody technology that is disruptive, but also the investor protection standards imposed on licensed custodians. Demand for institutional-grade custody solutions has skyrocketed as traditional financial institutions venture out to launch cryptocurrency-related trading products in the United States. In early August alone, six major asset managers submitted applications to launch ethereum (ETH) futures ETFs to U.S. clients.
BlackRock’s expansion into the crypto space last year was fueled by its partnership with Coinbase, which will take care of the bitcoin held in BlackRock ETFs and provide market oversight to reduce fraud and market manipulation, according to documents.
The cryptocurrency custody market itself is expanding rapidly.Cryptocurrency custody market value according to Markets and Markets estimated That figure will reach $223 billion by January 2022, up from $32 billion in January 2019. And that growth won’t slow down anytime soon, with a projected CAGR of 26.7% through 2028.
related: Bitcoin ETF: Worse for Crypto than Centralized Exchanges
The complexities and risks associated with broader digital assets require robust custody services. As we transition to Custody 3.0, an era characterized by active participation in the decentralized economy, these services are evolving to include connections to on-chain services and DeFi applications. The key to digital asset custody institutions is to provide comprehensive digital asset monetization services within a high-standard operating framework on the basis of existing infrastructure.
In this context, a fully licensed digital asset custodian becomes a trusted partner, enabling financial institutions to integrate digital assets into their business operations in a secure, scalable, and compliant manner.
Regulatory hurdles and triumphs
The crypto industry has had a brutal time since the market peaked in late 2021, but frantic crypto ETF filings from Wall Street bigwigs suggest that this corner of the market is gaining attention.
Regulation remains the biggest hurdle in the US. Over the years, multiple fund houses have tried to get crypto ETFs approved, only to be turned down due to concerns about fraud and market manipulation.
But it’s not all bleak on the regulatory front. Outside of the US, we see a global trend towards a clearer regulatory framework for digital assets. This is like a regulatory domino effect, paving the way for the creation of strategic digital asset hubs in places like Singapore, Hong Kong, the United Arab Emirates and Europe. The implementation of these frameworks will not only accommodate the growth and diversity of the cryptocurrency market, but will also increase transparency and investor protection, benefiting the industry and its participants. As they grow stronger, they are laying the groundwork for investment vehicles such as crypto ETFs, further stimulating institutional demand.
With Hong Kong recently debuting retail cryptocurrency trading through a licensed exchange, it won’t be long before we see Asia’s first spot cryptocurrency ETF.
gradually, then suddenly
The domino effect of crypto ETFs is not just a shift, it’s a revolution. This is a revolution on the horizon that will redefine the financial landscape. It’s not just about money. It is about the potential for a more inclusive, transparent and efficient financial system, paving the way for broader market access.
So the question is not whether to embrace the crypto revolution to get ahead, but how to do so effectively or risk being left behind. The dominoes are falling. Now is the time to act.
Shen Jiawen Over 10 years of financial services and investment experience in fintech startups and asset management. As Managing Director of Hex Trust, Shen works closely with global clients to provide customized blockchain and custody solutions, helping them bridge the world of digital assets and traditional finance. Prior to joining Hex Trust, Calvin held various positions in institutional sales and business development at leading companies including PIMCO, Figure Technologies, Deloitte and BNY Mellon. He holds an MBA from Columbia Business School, a BA in Economics from UC San Diego, and is a CFA and CAIA charterholder.
This article is for general informational purposes only and is not intended and should not be construed as legal or investment advice. The views, ideas and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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