Bitcoin (BTC) Exchange-Traded Funds (ETFs) Offering Staking Capabilities Could Significantly Boost Institutional Engagement

Bitcoin (BTC/USD) exchange-traded funds (ETFs) offering staking capabilities could significantly boost institutional engagement by putting idle assets to work

Co-founder of Bitcoin (BTC) Layer 2 solution provider Bitlayer Charlie Hu has highlighted the potential of exchange-traded funds (ETFs) offering Bitcoin staking capabilities to massively boost institutional engagement by putting idle assets to work.

In an interview with Benzinga on Thursday at the sidelines of Eth Denver, Hu said that he hopes to see the U.S. Securities and Exchange Commission approves an ETF with staking capabilities in 2025.

"SEC approving the Bitcoin ETF staking. That's the one speculating, we don't know when exactly and whether or not it's going to happen."

According to Hu, such an ETF would be a pivotal development as it would allow ETF firms to shift Bitcoin from passive custody to active use, a change that could reshape institutional participation in the crypto market.

The Bitlayer co-founder also drew on his experience with Polygon (CRYPTO: MATIC) and Polkadot (CRYPTO: DOT) to explain several economic and security benefits of Bitcoin rollups over sidechains.

"Once we have an ecosystem, we have a lot of transactions, we're going to contribute in the fees with the Bitcoin settlement," said Hu, adding that Bitlayer's 28 million transactions on its mainnet are already generating fees for Bitcoin miners.

This alignment, he argued, supports the network's security budget, especially as halving events decrease the miner reward, a critical issue for Bitcoin's long-term resilience.

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Moreover, Hu pointed out that Bitcoin is transitioning from digital gold to a broader financial tool, catalyzed by Layer 2 innovations.

"A lot of the Bitcoin has been sitting on the cold wallet not doing anything, not getting any yield, not any interest in the last 10 years, 15 years," said Hu, who suggests that staking and decentralized finance use cases could meet the growing demand from new users and institutions.

Bitlayer's approach, leveraging zero-knowledge proofs and BitVM for trust-minimized bridging, aims to unlock this potential, although he acknowledged the challenges of balancing cost and security for on-chain settlement.

Looking ahead, Hu predicts that within five years, Bitcoin Layer 2s will enable decentralized payments, stablecoins, and on-chain options markets, expanding the possibilities of the Bitcoin ecosystem.

However, his emphasis on staking ETFs presents a nearer-term opportunity to integrate institutional capital with Bitcoin's expanding ecosystem, potentially catalyzed by regulatory clarity under a pro-crypto U.S. administration.