What is crypto assets/Bitcoin ETF? What is the domestic situation and why was the listing rejected?

What exactly is an ETF?

ETF is an abbreviation for exchange-traded fund and refers to an investment trust (exchange-traded fund) that is traded on an exchange. Exchange-traded funds refer to investment trusts listed on stock exchanges and are linked to specific indexes (such as the Nikkei Stock Average).

ETFs were launched in April 2013 by the Bank of Japan as a means of monetary easing, to help Japan overcome deflation. There are many different types of ETFs to choose from, and due to the nature of the product, it is characterized by naturally diversified investments.

There are mainly three types of ETFs: REIT (real estate investment trust), commodity (futures), leveraged type (bull-type), and inverse type (bear type).

ETFs can be bought and sold at any time on the market just like regular stocks, and margin trading is also possible. Buying and selling prices are determined by supply and demand between buyers and sellers on the exchange.

The advantage of ETFs is that they combine the characteristics of stock investments and mutual funds, and can be easily bought and sold by the general public.

Difference between spot ETF and futures ETF

There are two main types of ETFs: spot ETFs and futures ETFs.
The Bitcoin ETF, which was listed on the New York Stock Exchange in the United States on October 19, 2021, is an ETF that is linked to futures prices and is classified as a so-called futures ETF.
In this chapter, we will explain the two types of ETFs in detail.

What is spot ETF?

As the name suggests, a spot ETF is an ETF that invests in physical financial products.
The price of a spot ETF aims to be linked to the spot price of the financial instrument in which it invests.

Buyers of physical ETFs can buy and sell ETFs on the market just like regular stocks or bonds.
Compared to individual stocks and bonds, ETFs improve liquidity in the market and make trading more convenient.

What is a futures ETF?

On the other hand, a futures ETF is an ETF that invests in futures trading or an ETF whose price is linked to an index that uses futures trading prices.

The Bitcoin ETF, which was approved as the first crypto asset ETF in the United States on October 19, 2021, falls under this futures ETF.

Futures trading is a type of financial derivative. Refers to a transaction in which a promise is made to buy or sell “specific financial products,” such as stocks or bonds, at a “predetermined price” on a “predetermined date.”

By listing the Bitcoin futures ETF, it will be possible to invest in Bitcoin without opening a cryptocurrency exchange account or cryptocurrency wallet. This could be a major factor in expanding Bitcoin investment to a larger number of investors.

What are the benefits of Bitcoin ETF?

The main benefits of Bitcoin ETFs include the following five points.

1. Increased trust in virtual currency

The first is that the credibility of crypto assets may increase.

The fact that a Bitcoin ETF has been listed on a stock exchange means that the financial product Bitcoin has passed the exchange’s rigorous examination. This confirms that Bitcoin has been recognized to some extent as a financial product that exceeds a certain level of investor protection, such as transaction transparency and security.

From the above, it can be said that the listing of a Bitcoin ETF increases the social credibility of crypto assets because the exchange recognizes that it is suitable as an investment target.

2. Inflow of funds from institutional investors

Second, there may be an influx of investment capital from institutional investors.

Institutional investors must safely manage the funds they have entrusted to them. Therefore, they cannot invest in something that does not have sufficient investor protection.

Even if you cannot purchase Bitcoin (BTC) on a virtual currency exchange, if a Bitcoin ETF is listed, you can add it to your investment portfolio.

As a result, it is said that funds will flow into Bitcoin (BTC) and the price can be expected to rise.

3. Margin trading is possible

Thirdly, you can do credit trading. You can also sell ETFs.
Even when prices are falling, it becomes easier to complete trades, and trading may become more active.

In addition, by using margin trading, it is possible to aim for high returns even with a small investment amount. By setting a multiplier called leverage, you can trade with a trading amount that is higher than your original capital. As a result, you have the potential to earn big returns.
However, while margin trading makes it easy to aim for large returns, it also comes with an increased risk. Investors should make investment decisions with due care.

4. High liquidity and easy to buy and sell

For traders, high liquidity is important for stress-free trading. When liquidity is low, it becomes difficult for traders to execute trades at their desired prices, and it takes longer to execute trades.

For those who need to buy and sell on a larger scale than before, and who have plenty of funds to manage, the introduction of ETFs can be considered to have lowered the hurdles to investing in Bitcoin.

Tax benefits

Fifth, depending on the case, the tax burden may be reduced.

Gains from the sale of Bitcoin (BTC) are subject to comprehensive taxation as miscellaneous income. In the case of comprehensive taxation, the higher the income, the higher the tax rate.

On the other hand, Bitcoin ETFs are subject to separate taxation as a financial product. In the case of separate self-assessment taxation, the tax rate is fixed. Therefore, there is an advantage in that your tax burden will be reduced when you receive a very large profit.

What impact does Bitcoin ETF news have on charts and price movements?

News related to Bitcoin ETFs has a huge impact on Bitcoin prices and the entire crypto asset market. If you look at price movements before and after the news is announced, you can see notable crashes and spikes.

For example, when the Winklevoss brothers’ application for a Bitcoin ETF was rejected by the SEC (U.S. Securities and Exchange Commission), Bitcoin prices plummeted.

Before the rejection of the application was announced, the market was hopeful that approval would bring in institutional investors and increase Bitcoin (BTC) trading volume. As a result, Bitcoin prices were skyrocketing. However, the rejection of the application turned those hopes into disappointment, causing the price of Bitcoin to plummet.

Quote: Bitcoin/JPY (BTC/JPY)

On the other hand, on October 15, 2021, when the SEC (US Securities and Exchange Commission) approved the handling of Bitcoin futures ETFs for the first time in the United States, the price of Bitcoin skyrocketed.

The chart at that time was as shown above. If you look at the chart on October 15, 2021, when the Bitcoin Futures ETF was approved, you will see that the Bitcoin price skyrocketed in one day and exceeded 7 million yen in Japanese yen terms. The high price of 7.14 million yen on this day was the highest price ever for Bitcoin.

Bitcoin ETF application, rejection, and process of approval

There were many twists and turns before the Bitcoin ETF was approved.
In this chapter, let’s look back at the history of Bitcoin ETF applications and rejections to date.

Winklevoss brothers application

First, in March 2017, the Winklevoss brothers applied for a Bitcoin ETF, which was rejected by the SEC (U.S. Securities and Exchange Commission).

Subsequently, in December 2017, Bitcoin futures trading will be listed on the CBOE (Chicago Options Exchange). If futures trading is approved, expectations have increased that Bitcoin ETFs will also be allowed to be listed.

However, in January 2018, the SEC announced concerns regarding Bitcoin. In response, four funds that had applied for Bitcoin ETFs canceled their applications. The company voluntarily determined that the conditions for listing were not met, and canceled the application to be listed again.

Application by CBOE (Chicago Options Exchange)

In March 2018, the CBOE asked the SEC to approve a Bitcoin ETF, and several other funds followed suit. However, listing Bitcoin ETFs is difficult, and in August 2018, the SEC refused approval for nine Bitcoin ETFs.

Then, in August 2018, a senior SEC official announced the start of a review of Bitcoin ETFs. In October 2018, the SEC submitted amendments to the Bitcoin ETF, which is currently under review, and there is speculation in the market that there is a possibility of approval.

Application via Bitwise

In January 2019, asset management company Bitwise applied for a Bitcoin ETF. However, in October 2019, nine months after the application, the listing was refused because the issues of the possibility of market manipulation and the prevalence of fraudulent activities in the crypto asset market had not been resolved.

Bitcoin ETF approval in Canada, Bermuda, Brazil, and Dubai

Canada was the first country in the world to approve Bitcoin ETFs.
On February 11, 2021, Canadian asset management company Purpose Investments announced that its Bitcoin ETF had been approved by Canadian regulators.

In addition to Canada, Bitcoin ETFs have been approved in Bermuda, Brazil, and Dubai.
In February 2021, a crypto asset ETF incorporating Bitcoin and five other stocks was approved and began trading on the Bermuda Stock Exchange. Bitcoin and Ethereum account for approximately 96% of the stocks included in this crypto asset ETF.

On June 23, 2021, trading of a Bitcoin ETF approved by the CVM (Brazilian Securities and Exchange Commission) began on the Brazilian stock exchange “B3”.

In Dubai, on June 23, 2021, Canadian asset management company 3iQ’s Bitcoin ETF “QBTC” began trading on the Nasdaq Dubai exchange.

Approval of ProShares Bitcoin Futures ETF

On October 15, 2021, the SEC (U.S. Securities and Exchange Commission) became the first in the United States to approve the handling of Bitcoin futures ETFs.

The approved Bitcoin futures ETF is the ProShares Bitcoin Strategy ETF, which is part of the Proshares family of ETFs. Proshares is a general term for ETFs handled by the American investment fund company ProFunds Group.

This ETF is a futures ETF, so the price of the ETF itself is not directly linked to the actual Bitcoin spot price, but to the price of Bitcoin futures trading.

The news that a Bitcoin futures ETF was approved had an impact on the market, with the Bitcoin price reaching a record high of over 7 million yen in Japanese yen terms.

Second and third Bitcoin futures ETFs launched in the US

In addition, the second and third Bitcoin futures ETFs already exist.
Valkyrie Bitcoin Strategy ETF, the second ETF linked to Bitcoin futures in the United States, was listed on October 22, 2021.

In addition, the third Bitcoin futures ETF in the United States, the VanEck & Solid transaction has started.

The physical Bitcoin ETF that VanEck applied for was disapproved by the SEC (U.S. Securities and Exchange Commission) on November 12, 2021. The reason was that it still “does not meet the requirements to prevent market manipulation and fraudulent activities and protect the interests of investors.”

In the future, as Bitcoin ETFs become more popular, Bitcoin will likely gain more attention. Especially when a physical Bitcoin ETF is approved, it will bode well for the market more than ever.

Expectations for ETF of Ethereum (ETH), the second largest crypto asset by market capitalization

After the approval of the Bitcoin ETF excited the crypto asset market, interest in Ethereum (ETH) related ETFs has also increased. Ethereum is a crypto asset that has the second largest market capitalization after Bitcoin and was developed for a different use case than Bitcoin.

American asset management company “Kelly Strategic Management” applied for an Ethereum futures ETF with the SEC on November 29, 2021. If this application is approved, it could be quite positive for the crypto asset market. We can also expect the price of Ethereum to rise.

BlackRock applies for Bitcoin spot ETF

Many people think that this incident has started to change the direction of the approval of Bitcoin spot ETFs.

On June 15, 2023, BlackRock, the world’s largest asset management company, aims to establish a physical ETF based on Bitcoin (BTC) through its ETF brand “iShares”. It became clear that there was.

According to BlackRock’s filing with the U.S. Securities and Exchange Commission (SEC), the new fund will be named iShares Bitcoin Trust, and its primary assets will be custodian cryptocurrencies. It is made up of Bitcoin held by the asset exchange Coinbase.

In the past, the SEC has rejected applications for Bitcoin spot ETFs proposed by asset managers such as Grayscale, VanEck, and WisdomTree. However, BlackRock has more than $10 trillion in assets under management (AUM), and CEO Larry Fink is closely involved with the SEC and its chairman, Gary Gensler. The application attracted a lot of attention because it has comparable political power.

After this news was announced, Bitcoin price rose by about 1%, rebounding to just below $25,700.

Grayscale wins lawsuit against SEC

On August 29, 2023, crypto asset management company Grayscale Investments achieved a victory in a lawsuit against the U.S. Securities and Exchange Commission (SEC).

The SEC rejected Grayscale’s application to turn its over-the-counter Grayscale Bitcoin Trust (GBTC) into a Bitcoin exchange-traded fund (ETF). However, in a U.S. court filing on August 29, Court of Appeals Judge Neomi Rao granted Grayscale’s request for reconsideration and ordered that the SEC’s denial of the GBTC listing request be vacated.

Quote: X (old Twitter)

Grayscale CEO Michael Sonnenshein said his legal team was “actively considering” the court’s opinion and the victory sent Bitcoin’s price briefly rising to about $28,000.

Cointelegraph’s “false alarm” about BlackRock ETF approval

On October 16th, the US crypto asset (virtual currency) media Cointelegraph reported that US asset management company BlackRock had received regulatory approval for a spot Bitcoin ETF (exchange-traded fund). As a result of this denial, the price of Bitcoin (BTC) suddenly skyrocketed for a while, and then showed violent price movements, returning to the price before the spike.

On the 16th, Cointelegraph posted breaking news on Official However, the media later made some corrections to the post and subsequently deleted it.

Quote: Cointelegraph

Although it turned out to be a bit disappointing as a false report, it can be said that the news clearly showed the market’s high expectations for the approval of a Bitcoin spot ETF after the price soared due to the false report.

Bitcoin spot ETF is temporarily listed on the U.S. Depository Center (DTCC) list, raising expectations for approval

On October 24, 2023, the price of Bitcoin hit a new yearly high, and at one point soared to about $35,000. An event that seems to have contributed to this price increase is the listing of the physical Bitcoin ETF on the U.S. Depository Clearing Corporation (DTCC) list. The ETF listed is iShares Bitcoin Trust, which BlackRock has filed with the U.S. Securities and Exchange Commission (SEC). It was listed in the ETF list on the DTCC website with the ticker symbol “IBTC.”

Quote: X (old Twitter)

Although “IBTC” was once removed from the list, it was re-posted the next day on the 25th. It is also reported that IBTC has been listed on the DTCC list since August of the same year, and it is also explained that listing on the list does not mean approval by the regulatory authority.
However, as can be seen from the fact that the Bitcoin price has reached a new high for the year, we can see that the market has high expectations for signs that a Bitcoin spot ETF will be approved.

SEC approves Bitcoin spot ETF

Finally, on January 10, 2024, the U.S. Securities and Exchange Commission (SEC) announced that it would approve a total of 11 Bitcoin spot ETFs.

This time, the approvals were for 10 ETFs that had been applied for by major U.S. asset management companies, including BlackRock, Fidelity, and Ark Investments, as well as the ETF conversion of an unlisted investment trust managed in Bitcoin that was requested by Grayscale Investments. is.

With the approval of the Bitcoin spot ETF, investors can buy and sell it in the same way as stocks through their securities account at a securities company supervised by the SEC, and even if the securities company goes bankrupt, investors’ assets will not be lost. protected. In addition, with a market size of 7 trillion dollars (approximately 1,000 trillion yen), there are already many ETFs that invest in gold and real estate, and if a Bitcoin spot ETF is added to these, institutional investment will increase. This will make it easier for households and individual investors to incorporate ETFs into their investment portfolios.

What type of agency is the SEC (U.S. Securities and Exchange Commission) that conducts the examination?

When an application is submitted for listing a Bitcoin ETF, the SEC conducts the review to determine whether it is approved or not. SEC is an abbreviation that stands for Securities and Exchange Commission.

In Japanese, it stands for the United States Securities and Exchange Commission, and it was established to protect investors. Its main function is to protect investors by monitoring whether illegal activities are taking place in securities transactions in the market.

The SEC is an American federal government agency that performs almost the same functions as the Securities and Exchange Surveillance Commission in Japan. The United States also has a Securities and Exchange Act, which is similar to the Financial Instruments and Exchange Act in Japan and is unique in that its activities are based on that law.

We work every day to prevent investors from suffering losses by monitoring the market and managing securities companies. When deciding whether to approve a Bitcoin ETF, the focus is on whether there are any problems from the perspective of investor protection.

Can Bitcoin ETFs be traded in Japan?

Up to this point, we have provided a thorough explanation of the outline of ETFs, trends in price fluctuations due to approval, and the history leading up to approval.
After understanding the topics up to this point, you may be wondering,
“Is it possible to purchase Bitcoin futures ETFs in Japan?”

In conclusion, it is not possible to trade Bitcoin ETFs in Japan (as of November 2021).
The reason for this is the Japanese Financial Services Agency’s stance on crypto asset investment.

For ETFs listed on overseas exchanges to be handled by securities companies in Japan, an application for ETFs listed overseas must be filed with the Financial Services Agency of Japan. For example, in the case of the ProShares Bitcoin Strategy ETF, which was the earliest Bitcoin futures ETF to be approved in the United States, the operating company, ProFunds Group, is required to submit a notification form in Japan. is.

The significance of incorporating Bitcoin into your portfolio

I hope you understand why Bitcoin ETFs are not approved in Japan.
Here we will explain the significance of incorporating Bitcoin ETFs or Bitcoin into your asset portfolio. Portfolio is a term that refers to the ratio and combination of assets and financial products that you manage.

Hedging against inflation

Bitcoin can also be a hedge against inflation.
The decisive reason for this is that the total supply of Bitcoin is set at 21 million coins. The constant supply of Bitcoin shows that Bitcoin is a resilient asset against inflation.

Similarly, I think it is easy to imagine gold as a hedge against inflation. However, the amount of gold mined in the future is not precisely determined. It is also possible that a new gold mine will be discovered and the overall supply will increase. In comparison, the total supply of Bitcoin is strictly fixed at 21 million coins, so from the perspective of supply alone, it can be said to be a better hedge against inflation than gold.

Let me explain inflation in a little more detail.
Many people think of the word inflation as an increase in the prices of goods, but strictly speaking, the definition of inflation is different. Inflation is a decrease in the value of fiat currency.

Generally, when the supply of a good increases, the price of that good decreases. The same can be said for fiat currencies. Governments around the world during the coronavirus pandemic tried to calm the economic panic by implementing large-scale monetary easing. During this monetary easing, a large amount of fiat currency was issued, and the value of fiat currency itself decreased.

When the value of fiat currency decreases, the relative price of goods increases. Monetary easing during the coronavirus pandemic caused a simultaneous spike in stock prices around the world. This case highlighted the problem that the amount of legal currency issued can be determined by the government’s discretion.

If the government does not stop the progress of inflation, Bitcoin can become a means of hedging inflation that does not depend on the government.

Summary of Bitcoin ETFs

In this article, we have provided comprehensive information about Bitcoin ETFs.
Let me summarize the points I wanted to convey in this article.

• Overview and benefits of ETFs
• How futures ETFs work
• How news about Bitcoin ETFs impacts the market
• Process of application, rejection, and approval for Bitcoin ETF
• What kind of agency is the SEC (U.S. Securities and Exchange Commission) that approves Bitcoin ETFs?
• Reasons why Bitcoin ETFs cannot be traded in Japan
• The significance of incorporating Bitcoin into your portfolio

The approval of Bitcoin ETF will make crypto assets more widely available to investors.

In the future, with the approval of physical Bitcoin ETFs, we may see a world where investing in Bitcoin becomes commonplace. We recommend that you start investing in Bitcoin now to benefit from the price increase.
We hope this article will be useful as reference information for learning about Bitcoin ETFs.