A Spot Bitcoin ETF Is Easy. What Comes Next Could Get Dangerous.
Giving fund managers easier access to bitcoin is already a contentious topic for regulators. It is nothing next to the Pandora’s box that could be opened with its crypto peer ether. The price of bitcoin has surged roughly 14% this past month to around $42,000.
Investors believe U.S. regulators will soon green light exchange-traded funds, or ETFs, that hold spot bitcoins, bringing billions of dollars into the market. Ether has gained 10% over the same period.
Though officials last week delayed the decision whether to allow spot ether ETFs, whose prospective providers include BlackRock and Invesco, traders increasingly think it inevitable that whatever goes for bitcoin will go for the second-most-popular cryptocurrency. One sign of this is that Grayscale’s bitcoin and ether trusts now trade at 11% and 14% respective discounts to the cryptocurrency they own, implying fairly similar chances of getting converted into an ETF. The problem is that bitcoin and ether aren’t two peas in the same pod.
Bitcoin validates transactions by having computer servers, known as “miners," solve complex problems. This uses up massive amounts of energy and more water than all of New York City. To solve this conundrum, ether’s Ethereum network switched last year to a “proof-of-stake" system.
Anyone who owns ether can vouch for the accuracy of transactions and get rewards. The only requirement is to lock up or “stake" their holdings, as one would do with currency in a bank time deposit. This is a key difference.
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