Opinions are divided on what will happen in the cryptocurrency market if the Securities and Exchange Commission (SEC) approves a spot bitcoin exchange-traded fund (ETF). While some analysts predict a massive influx of investment, others believe that the initial impact will be overestimated.
For years, industry experts have been urging the SEC to approve a U.S. spot bitcoin ETF, which is expected to attract institutional investment. However, the SEC has rejected every application so far. But now, analysts are speculating that at least one of the current proposals, which number more than a dozen, will be approved as early as Friday.
Gabor Gurbacs, the director of digital assets strategy at VanEck, believes that a spot ETF will create trillions of dollars in value in the long term. However, he cautions that people tend to overestimate the initial impact of U.S. Bitcoin ETFs. He predicts that the initial flows will only amount to a few hundred million dollars, mostly consisting of recycled money.
On the other hand, some analysts argue that if approval is granted, ETF issuers will need to purchase tens of billions of dollars’ worth of bitcoin to meet the institutional demand. This could lead to a significant shift in the supply and demand dynamics of the market. In fact, some analysts even predict a supply shock, as exchange balances have fallen to a five-year low in October. This suggests that bitcoin holders are storing their assets in personal wallets, indicating a reluctance to sell.
To gain some insight into the potential impact of a spot ETF, analysts have looked at the performance of other ETFs in different markets. For example, the SPDR Gold Shares ETF (GLD), the first spot gold ETF in the U.S., accumulated billions of dollars in its first few weeks and continued to grow in value over time. Similarly, the Invesco’s QQQ ETF, which tracks the Nasdaq-100 index, saw significant inflows in its early days.
In the cryptocurrency market, the ProShares Bitcoin Strategy ETF (BITO), which is based on bitcoin futures, amassed billions of dollars shortly after its introduction in October. Despite being exposed to rollover costs, the fund has closely followed bitcoin’s spot price and has been a popular option for investors seeking exposure to bitcoin without the hassle of ownership and storage.
However, there are other factors to consider, such as the global economy and household finances. With elevated risk-free interest rates worldwide and worsening household finances, the macroeconomic environment may not be conducive to strong mainstream adoption of spot ETFs.
As for the market reaction, bitcoin has been rallying since early October, largely due to expectations of an ETF approval. Some analysts predict a sell-the-news-led pullback once the ETFs go live. They believe that investors who have benefited from the price increase will sell to lock in their profits once the news is confirmed. This pattern has been observed in previous events, such as the debut of CME bitcoin futures and Coinbase’s listing on Nasdaq.
In conclusion, opinions on the potential impact of a spot bitcoin ETF approval are mixed. While some analysts anticipate a significant increase in investment, others believe that the initial impact will be more modest. The market reaction is also uncertain, with some predicting a pullback in bitcoin’s price after the ETFs go live. Ultimately, only time will tell how the market will respond to this significant development in the cryptocurrency industry.