The recent approval of Bitcoin spot exchange-traded funds in the U.S. is undoubtedly a strong development for Bitcoin and crypto, particularly on the regulatory and institutional fronts. From a technological viewpoint, the positive reception to the ETFs is also a reminder the crypto industry must continue to reduce user-friction if we want to see mass adoption.
It is now two months since the U.S. Securities and Exchange Commission approved Bitcoin spot ETFs for listing, and Bitcoin has hit a new all-time high and regained its trillion-dollar market capitalization. An early forecast estimated the funds will manage assets of $72 billion over five years, and more than $9 billion of inflows have already entered through the ETFs since their trading started.
While the market appears to be riding on the ETF’s reception towards a bull cycle, native crypto and Web3 companies must not rest on their laurels but continue to lower the technological entry barriers. This is because many institutional and retail investors turn to ETFs due to user friction.
Friction here refers to the numerous steps users have to take to onboard to a wallet or exchange; to the amount of time they have to spend to get educated on best practices such as how to secure their passwords and devices; and to having to guard against scams and hacks. These can be addressed by product design.
Let’s draw a comparison between Bitcoin and gold, and understand why both commodities warrant ETF markets. Average investors do not want to physically hold gold bars as a store-of-value, because where and how should they keep it securely and conveniently? Gold ETFs exist for that purpose.
Bitcoin, on the other hand, has long carried the mantle of “digital gold” — all the scarcity of a commodity without the traditional transportation and storage costs required with physical goods. Why then do we bother with ETFs, which are effectively a wrapper, instead of owning your own digital gold in your own digital wallets? Because cryptocurrency is still in its early developmental phase and products such as wallets and exchanges are still complex and daunting for the vast majority.
Bitcoin ETFs help alleviate entry barriers by managing complexities most people don’t want to tackle, such as ensuring seed phrases are secure. In return, investors are willing to absorb the ETF fees, and let the ETF have custody over their assets.
If we look at the fees paid to ETF issuers along with forex, premiums and other costs, ETFs are usually costlier than acquiring Bitcoin directly from an exchange, and yet there is clear market demand for ETFs. Traditional financial service providers legitimize cryptocurrencies in the financial market by issuing highly accessible ETFs.
The introduction of spot Bitcoin ETFs is a massively positive development for the industry, because it is set to enable new users and capital streams. Traditional asset managers now have a benchmark to measure performance against, which is a very promising step towards increased infrastructure development that supports more TradFi participation.
If we can remove friction in how users can access crypto, we certainly will increase adoption and enable more people to participate. Our common long-term goal should be to make crypto broadly accessible by equipping users with the knowledge and tools to directly access and manage their own crypto. We must build user-friendly, secure, and intuitive products that can make crypto more easily accessible for everyone.
