Jan 30, 2024

In this week's edition of "Open Forum," viewers send CoinDesk questions on social media and host Jennifer Sanasie gets the answers after the highly-anticipated spot bitcoin ETF approvals took place in the U.S. ETF Think Tank research director Cinthia Murphy assisted CoinDesk with the answers to these inquiries.

Video transcript

This spot Bitcoin ETF update is presented by Grayscale, the world's largest crypto asset manager. It's time now for open forum. This is a brand new segment where you send us questions and we find you answers. This is all about making the space, making the industry more accessible because you know what things don't have to be that daunting. All right, let's go. It's been 20 days since spot Bitcoin ETF S were approved in the United States and 21 days since they started trading, we asked you on X what was still unclear about the spot Bitcoin ETF S and found out that there are still a lot of things that are unclear about these products. So let's try and clear the waters. The first question is from crypto signals you, it says, how exactly does a Bitcoin ETF differ from holding physical Bitcoin? OK. Let's get into it. If you buy the ETF, you don't actually ever own any physical Bitcoin. What you own is a share of F that delivers you the price performance of Bitcoin. So if the price goes up, the price of your share will go up. But if the price of Bitcoin goes down, the price of your share will go down. This means that you get to participate in the price action, but you don't actually have any Bitcoin. So if you want to pay your friend for babysitting your dog with some Bitcoin, you can't actually do that because you don't have any, you just have some shares in a fund. On the other hand, when you buy Bitcoin on chain and transfer it to a cold wallet. For example, if you buy Bitcoin at an exchange like Coinbase and then you move that Bitcoin to your own wallet, you own your Bitcoin and you can act as your own thing. Of course, if the price goes up, you'll be pretty happy, I think. And if the price goes down, you won't. But that friend who's babysitting your dog will be able to get paid if you choose to pay them with Bitcoin. All right. Question number two comes from crypto swats yt. They asked how many ETF S of the 11 will actually survive and take most of the buying share. Cynthia Murphy from ETF think tank says that some have framed this as a big dog versus crypto native battle. This is because firms like black, which is the biggest asset manager in the world and firms like gray scale which is a crypto native asset manager have both joined the ETF race. Cynthia told us that it's all going to come down to investor preference at the end of the day. So over time, she added that the performance and differentiation could matter, but she noted something pretty interesting. There are 10 physical gold ETF s in the United States worth 100 and $10 billion. So if we use that as an anchor, all 11 could survive right now though Blackrock and Fidelity are leading the asset gathering race. Let's take a look at question. Number three, this comes from BT C like Bitcoin. They asked how soon after somebody invests in a Bitcoin ETF, do the funds buy the spot, Bitcoin? And did any of the ETF providers accumulate Bitcoin prior to the ETF S being tradable. Cynthia Murphy told us that funds usually purchase the Bitcoin within 24 hours and yes, many of the providers had private funds or ETF S in other geographies that already owned a significant amount of Bitcoin. Next question comes from Bitcoin or Donald. This is not Donald Trump's official account. They asked how many Bitcoin ETF shares are equivalent to a whole Bitcoin. Now, this depends on the fund. They each come in at different price points. So you'll have to check the price of the fund that you want to buy into. But a simple formula for reference would be to take the price of Bitcoin and divide it by the price of the ETF share that you want to buy. So for example, in very simple math, if a share of an ETF cost $5 and the price of Bitcoin was $100. I don't know what world we're living in now, but let's just go with it. 20 shares would be equal to one whole Bitcoin. And lastly bears. Pargo asked, would you be able to explore how Bitcoin ETF S might shake up the market dynamics, particularly influencing the fluctuation patterns and fluidity of Bitcoin prices. Cynthia said that ETF S often get a bad rep for moving markets when in reality, they're a great price discovery instrument because they're so liquid. She says the only likely impact is increased demand due to easy regulated and lower cost access, more demand in the face of inelastic supply could be supportive of prices over time. So what does this mean? Ok, I'm gonna try and break it down for you since there's a fixed supply of Bitcoin, there will, will never be more than 21 million coins. That means we can expect the price to increase over time if demand increases, which a lot of people think it will. Cynthia also noted that most market participants are also suggesting that increased liquidity could smooth out some of the price volatility we've seen with Bitcoin liquidity refers to the ease in which an asset can be bought or sold. So in this case, the asset is Bitcoin. Higher liquidity usually means that there are more buyers and sellers in the market making it easier to execute trades without causing big price movements. So the idea here is that if there is increased liquidity in the market, it may make the market more stable and less prone to sharp and sudden price changes. OK. That was our very first open forum. Just stick with us. It's gonna get better over time. A big thank you to head of research and content at ETF Think Tank, Cynthia Murphy for assisting us with the answers to those questions. So now that we've answered some of your questions about the spot, Bitcoin ETF, how would you choose to invest in Bitcoin? Today? We asked folks on X and 67% of you still said self custody, that means holding your own Bitcoin in a cold wallet while only 13% said that they would buy into an ETF what I take away from this all is that there are options out there for everyone that matches each person's different risk, appetite. People who are comfortable with crypto and holding their own coins and being their own bank can opt for self custody while folks who want the reassurance of participating in a product that is regulated and with asset managers who maybe have a little bit more longevity might opt for an ETF my takeaway point here is because one exists, it doesn't discredit the other

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