Steemit Crypto Academy Contest / S15W3 - Bitcoin ETF! What impacts?

Assalamualaikum everyone!

Welcome to the post. Hopefully, all of you will be doing well and enjoying the time with the grace and blessings of Almighty Allah. Today, I'm here to be a part of the week 3 contest in our beloved SteemitCryptoAcademy community. The topic of discussion for this week is Bitcoin ETF! What Impacts? So, let's start the fun without any wastage of time.

What is a Bitcoin ETF, and how does it differ from owning bitcoins directly?

There are several new techniques which are being introduced in the crypto space and one of those advanced techniques is the Bitcoin ETF. A Bitcoin ETF is an Exchange-Traded Fund that seeks to track the price of Bitcoin without actually holding the cryptocurrency. This means that owning shares of the ETF provides you with exposure to Bitcoin's price changes rather than actual "coins" to spend.

Going more deeper, there is the Spot ETF, these hold actual Bitcoins and seek for a 1:1 connection with the underlying asset. The first US-based Spot Bitcoin ETF went live in October 2023. The other important type is the Derivatives based ETF. These use financial instruments such as Bitcoin futures contracts to mimic Bitcoin price swings. These were the first Bitcoin ETFs available in the United States, beginning in 2021.

Moving Towards the Main Differences...

There are several basis on which the Bitcoin ETF and Owning the Bitcoin can be distinguished from each other. Some of the important in this respect are given below.

• Investment Method:

The first and the most important difference between them is that the ETFs are traded on major exchanges in the same way that ordinary stocks are. But on the other hand, Bitcoins are purchased using cryptocurrency exchanges (such as Binance and Coinbase), which require specialised accounts and wallets.

• Holding:

The other difference lies in the holding method of these two things. In ETF, You do not own any actual Bitcoins. The ETF owns the underlying assets (actual Bitcoin or derivatives). While on the other hand, you store the Bitcoins in a digital wallet, which gives you complete control and potential spending power.

• Benefits:

Another important thing to note here is that the ETFs are easier to buy and sell through normal brokerage accounts, avoid the involvement of cryptocurrency exchanges and wallets, and may have lower costs (when compared to some crypto exchanges).

While on the other hand, perhaps better returns because you can directly follow Bitcoin price movements, have full control, and perhaps use it for transactions.

• Drawbacks:

ETFs may not completely track Bitcoin's price due to tracking faults, expense ratios reduce returns, and there are potential regulatory hazards. But, Bitcoin owning requires technical understanding (wallet security, exchange hazards), poses a danger of theft or loss of private keys, and has limited general usage for spending.

How can the approval of a Bitcoin ETF by the commissioner of the American Stock Exchange SEC influence the cryptocurrency market? And why did it fall just after this approval?

Of course, there is a great impact on the fundamentals of the crypto market as many of the investors make their decisions by keeping these things into their consideration.

The US Securities and Exchange Commission (SEC) approved a Bitcoin ETF on January 10, 2024, in a momentous decision that could have a huge impact on the cryptocurrency market. Despite the early enthusiasm, the market witnessed a subsequent fall.

Let's look at the various influences and reasons for the price drop:

Potential Beneficial Effects of ETF Approval...

• Increased Institutional Adoption:

The first and the most important thing is that the ETFs are a familiar and regulated investment vehicle for institutions, possibly pulling billions of dollars in additional capital into Bitcoin. This could result in increased demand and higher pricing.

• Market validation:

Another important thing to discuss here is SEC certification demonstrates Bitcoin's legality and stability, potentially increasing investor trust and attracting a broader spectrum of players. I hope for a very best future of the platform.

• Improved Liquidity:

ETFs may boost Bitcoin's overall liquidity, making it easier and cheaper to purchase and sell, hence improving price discovery.

• Worldwide Impact:

Positive events in the US crypto market frequently have a knock-on effect on the worldwide landscape, potentially benefiting the entire cryptocurrency ecosystem.

Reasons for the price Decline following Approval...

• One of the major reasons is that some early investors may have viewed the approval as a "sell the news" event, cashing in on their gains after a lengthy period of anticipation.

• While good in the long run, ETF launches can cause short-term price volatility as different investor groups modify their positions frequently.

• Moreover, the broader market conditions, such as rising interest rates or inflationary concerns, can effect the positive cryptocurrency news and harm the public opinion.

• The first approved ETFs are physically backed, which means they contain actual Bitcoin, which may not appeal to many organizations looking for exposure without direct ownership.

How can the approval of a Bitcoin ETF by the commissioner of the American Stock Exchange SEC influence the cryptocurrency market? And why did it fail just after this approval?

The approval of a Bitcoin ETF by the US Securities and Exchange Commission (SEC) may considerably contribute to the legitimacy and institutional recognition of cryptocurrencies. There are number of factors which are indirectly or directly involved in this process. Some of the import things are listed below.

• Increased Regulatory Clarity:

The first and the most important thing is that the SEC's approval represents a shift in regulatory posture, recognising Bitcoin as a valid asset class and establishing regulatory standards for its involvement in regular financial markets. This clarity can assuage concerns about legal uncertainty and entice institutions who are hesitant to engage the unregulated cryptocurrency industry.

• Enhanced Accessibility and Transparency:

Another important thing is that the ETFs, like stocks and bonds, provide a recognisable and regulated investment vehicle for institutions, making it easier to enter the cryptocurrency market. Transparent pricing and daily settlements in a regulated exchange environment boost confidence and give familiar reporting tools as well.

• Institutional Investor Confidence:

SEC approval indicates a level of assessment and due diligence, which may alleviate institutional risk concerns and attract pension funds, endowments, and asset managers. Increased institutional participation may result in improved market stability and wider acceptance of Bitcoin.

• Market Validation and Legitimacy Boost:

Approval serves as a public validation of Bitcoin's potential, drawing attention from traditional investors and the media, and normalising its view. Increased demand may drive up the price of Bitcoin, ensuring its place as a desirable asset class.

• Potential for Broader Cryptocurrency Adoption:

Another important thing to note here is that the positive developments for Bitcoin can have a knock-on effect, increasing trust in other cryptocurrencies and encouraging more institutional interest in the overall cryptocurrency ecosystem. This could hasten the widespread adoption of blockchain technology and its diverse applications as well.

How might the introduction of an SEC-approved Bitcoin ETF interact with the decentralized governance of the STEEM blockchain, and how might these two approaches complement or diverge in investors' perspectives on asset management? digital assets?

According to my knowledge and research work, the debut of an SEC-approved Bitcoin ETF and the decentralised governance of the STEEM blockchain reflect two opposing approaches to asset management and digital assets, providing investors with unique viewpoints. Some of these points are discussed below.

• Interaction:

Limited Direct Interaction: An ETF and a blockchain-like STEEM exist on different tracks, with the ETF operating inside traditional financial markets and STEEM functioning as a self-governing ecosystem.

• Indirect Influences:

ETF Performance: A Bitcoin ETF's strong performance may attract the investors to consider other cryptocurrencies, such as STEEM tokens.

Regulatory Changes: Increased monitoring of ETFs may influence investor sentiment towards decentralised platforms such as STEEM.

• Complementary Perspectives:

Accessibility: ETFs make it easier for traditional investors who are inexperienced with blockchain technology and cryptocurrency.

Openness: Unlike opaque ETF structures, STEEM's public ledger and on-chain governance provide openness and community interaction.

Control: Investors have direct control over their STEEM tokens, which allows them to participate in governance and potentially earn staking benefits. ETFs provide minimal control, as choices are made by fund management.

• Divergent Perspectives:

Centralization vs. Decentralisation: ETFs are centralised structures maintained by financial institutions, whereas STEEM represents the decentralised nature of blockchain technology.

Regulation vs. Autonomy: ETFs follow SEC laws, whereas STEEM has autonomous on-chain governance, which raises regulatory problems.

Investment Objectives: ETFs serves to investors wanting exposure to Bitcoin price swings, but STEEM provides a broader ecosystem with token usefulness and governance capabilities.

• Investor Considerations:

Risk Tolerance: ETFs offer regulated exposure with possibly lower volatility, whereas STEEM has larger potential profits but contains the inherent risks which are obviously associated with decentralized platforms.

Investment Objectives: ETFs are suitable for investors wanting price exposure to Bitcoin, whereas STEEM is appropriate for people interested in blockchain technology, token utility, and community participation.

Technical Expertise: ETFs demand less technical knowledge than direct participation in the STEEM ecosystem.

All in all, the decision between an ETF and a decentralised platform such as STEEM is based on personal investing objectives, risk tolerance, and desired amount of control and involvement.

Conclusions

Bitcoin ETFs, which have been approved by the SEC, are expected to increase the legitimacy of cryptocurrency and attract institutional investors by providing easy access and regulatory certainty. They differ from the decentralised governance of the STEEM blockchain, which enables transparency and control but has little public appeal. While both approaches to asset management provide unique views and investors must examine their objectives, risk tolerance, and technical expertise when deciding between regulated exposure through ETFs and direct participation in decentralised platforms such as STEEM.

I would like to invite my friends @malikusman1, @shabbir86, and @sahar78 to be a part of this amazing contest.