Bitcoin’s value has been steadily rising, partly due to speculation surrounding the imminent approval of bitcoin spot ETFs in America.
Currently, there are bitcoin ETFs listed in the US, but they are futures-based instruments. This is logical considering the regulated nature of the futures market. These instruments involve paper trading in bitcoin; as long as the counterparty doesn’t demand delivery, actual bitcoins aren’t traded.
Real bitcoin transactions take place on the spot markets, which remain unregulated. This has been a black box for regulators, resulting in past rejections of applications for spot bitcoin ETFs. This issue has now been addressed by working with a ‘surveillance partner’. In practice, most ETFs are expected to collaborate with Coinbase to handle their buy and sell orders. Granting the SEC access to all trades on Coinbase eliminates the argument that spot markets are a black box.
The concerns of the SEC have been systematically addressed, with filings for the ETFs continuously fine-tuning details. As applicants engage in clear conversations with the SEC, approvals are anticipated this time around, possibly as early as January.
Price Explosion…
Some observers suggest that spot ETFs will trigger an influx of fresh capital. Billions of dollars flooding the bitcoin market could propel bitcoin’s price skyward like a rocket. Major institutions like Blackrock and Fidelity are already promoting bitcoin to their clients, ensuring ample demand when the ETFs gain approval.
Since ETFs are traded on exchanges like regular stocks, a significant number of people will gain immediate access to purchasing actual bitcoin. While they could do this today by creating an account on an exchange, many have hesitated. They prefer to invest in bitcoin within a regulated environment.
The likelihood of billions entering the bitcoin market is high, but the inflow might not happen immediately. The anticipated $100 billion in fresh capital could trickle in over several years, moderating the immediate impact on prices.
Or Perhaps a Crash?
The potential approval of ETFs might also spell bad news for bitcoin prices. Naturally, there’s the classic element of ‘buy the rumor, sell the news’. Prices surge in anticipation of approval, and speculators cash in when confirmation arrives.
On the flip side, many entities have been long-time holders in the Grayscale Bitcoin Trust (GBTC). If this were to transition into an ETF, people might withdraw their bitcoin from the trust for selling purposes. Considering Grayscale’s entanglement in Genesis’ bankruptcy, they might opt to convert their shares into cash, potentially compensating their creditors like Bitvavo.
Moreover, GBTC had a discount of about 50% last year, which has now been reduced to around 10%. Speculators acquired GBTC shares speculating on the fund’s transition into an ETF. If this becomes reality, they might choose to cash in on their trade. JPMorgan suggests an outflow of about $2.7 billion from the fund in this manner, which could pressure bitcoin prices.
In the following weeks, it will become clear which scenario will prevail. Interested in buying bitcoin yourself? Read more about purchasing bitcoin on regulated exchanges.
