Potential Impact of a Bitcoin ETF Approval: A Deep Dive

• Discussing the Possibility of a Spot Bitcoin ETF Approval by the SEC
• Decade-Long Appeal for a US Spot Bitcoin ETF
• Influence of Approved ETF on the Crypto Market
• Previous ETF Successes
• Effect of Global Economy on Spot ETFs
• Market Reactions to Previous Crypto Events
• Expectations Ahead of Bitcoin Halving
• Spot Bitcoin ETF Vs. Previous Sell-The-News Events
• Potential Additional Demand for a Bitcoin ETF

Discussing the Possibility of a Spot Bitcoin ETF Approval by the SEC

Decade-Long Appeal for a US Spot Bitcoin ETF

For a decade, industry leaders have been appealing to the Securities and Exchange Commission (SEC) to permit a U.S. spot bitcoin exchange-traded fund (ETF). They believe this will usher in massive institutional investment in the cryptocurrency. Despite previous rejections, analysts suggest that an approval may be imminent, possibly affecting one or more of the current proposals as early as this week.

Influence of Approved ETF on the Crypto Market

Views differ on the impact of a spot bitcoin ETF approval on the crypto market. Gabor Gurbacs of VanEck suggests that while such an ETF could bring long-term trillions in value, it's likely overestimated in the short-term and initial flows may only tally a few hundred million dollars. Conversely, other analysts foresee a substantial shift in supply and demand dynamics. They predict an ETF approval would require issuers to buy billions of dollars of bitcoin to satisfy the institutional demand, potentially causing a supply shock.

Previous ETF Successes

Past successes of ETFs in other areas provide insight into this issue. The first spot gold ETF in the U.S., the SPDR Gold Shares ETF (GLD), started strong, collecting $1.9 billion in its first four weeks. In contrast, the ProShares Bitcoin$42,260 -0.64% Strategy ETF (BITO), based on bitcoin futures, accumulated around $1.5 billion within the 30 days following its October 2021 launch. BITO provides people with exposure to bitcoin without the complication of ownership and storage.

Effect of Global Economy on Spot ETFs

Considering the current economic climate, with rising risk-free interest rates globally and worsening household finances, it's uncertain how this will affect the potential uptake of spot ETFs. The market has reacted positively to speculation about an approval, with Bitcoin rallying 61% since early October.

Market Reactions to Previous Crypto Events

Previous crypto events suggest potential market reactions to a spot ETF approval. For example, Bitcoin's price surged following the approval of the first futures ETFs and then crashed into a bear market that persisted for over a year. CryptoQuant suggests that Bitcoin could drop to as low as $32,000 because current levels of unrealized profits typically precede a price correction in the market. Still, it's crucial to note that previous events occurred when the market was already ripe for a correction.

Expectations Ahead of Bitcoin Halving

In contrast, the anticipated spot ETF launch is set to precede the Bitcoin blockchain's quadrennial mining-reward halving, which has historically signaled the start of significant price rallies. This launch follows a brief price drop to $41,000 that liquidated $400 million in leverage bets and eliminated $2 billion in futures open interest.

Spot Bitcoin ETF Vs. Previous Sell-The-News Events

The difference with a spot Bitcoin ETF is the involvement of actual Bitcoin, theoretically reducing supply. This differs from events like the CME's futures launch, which allowed traders to synthetically short the cryptocurrency and triggered price declines. With a spot ETF, conservative institutional investors such as pension funds and insurance funds could gain exposure to native Bitcoin rather than resorting to ETF derivatives or Bitcoin proxy shares.

Potential Additional Demand for a Bitcoin ETF

Presently, 35 gold ETFs in the U.S. have total assets under management totaling $118.70 billion. A study by financial services firm NYDIG draws parallels between these and a potential bitcoin ETF, suggesting a possible additional demand of nearly $30 billion for a Bitcoin ETF.

Edited by Jonathan Stoker