On January 11, 2024, exactly 15 years after Hal Finney tweeted 'running bitcoin', the United States Securities and Exchange Commission (SEC) announced the groundbreaking approval of a bitcoin spot exchange-traded fund (ETF), marking a significant milestone for cryptocurrency investment products. This article explores the implications of the bitcoin spot ETF and what it means for crypto in general.
The Impact of the Bitcoin Spot ETF Approval
The approval of the Bitcoin spot ETF is expected to have substantial consequences for the cryptocurrency markets and traditional financial sectors as it opens up a new compliant channel for traditional funds to enter the cryptocurrency industry.
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The Bitcoin ETF approval, is potentially putting it among the trillion dollar markets of other ETF products. This alters asset sizes, introduces new derivatives, and influences asset management strategies globally. A big change for crypto that is still in its adolescent years.
However, the SEC's approval order clearly clarifies that while the listing and trading of spot bitcoin ETF shares are approved, it does not constitute an endorsement of Bitcoin. SEC Chairman Gensler emphasized the need for investors to remain cautious when dealing with Bitcoin products or cryptocurrency in general.
What is certain is that the spot ETF will democratize access to Bitcoin investments and will definitely attract both retail and institutional investors.
Which Spot Bitcoin ETFs Have Been Approved by the SEC?
The SEC has given the green light to several spot Bitcoin ETFs, some of which are managed by the most prominent names in the traditional investment world. A few well known names are;
- Grayscale Bitcoin Trust
- Bitwise Bitcoin ETF
- Hashdex Bitcoin ETF
- iShares Bitcoin Trust
- Valkyrie Bitcoin Fund
- ARK 21Shares Bitcoin ETF
- Invesco Galaxy Bitcoin ETF
- VanEck Bitcoin Trust
- WisdomTree Bitcoin Fund
- Fidelity Wise Origin Bitcoin Fund
- Franklin Bitcoin ETF
Bitcoin spot ETF in Numbers
We see that Grayscale's converted ETF led the charge with a staggering $1.9 billion in trading volume by 3:02 p.m. ET. BlackRock and Fidelity followed, with $942 million and $628 million in trading volumes respectively. These figures were compiled by Yahoo Finance and reported by The Block. Although the price didn’t see an immediate increase. Many suggest these volumes were done over the counter (OTC), and that’s why no immediate price changes were visible.
Also, financial institutions have put forth staggering predictions post-approval of the Bitcoin spot ETF. Standard Chartered Bank expects a $50–100 billion capital inflow. VanEck predicts over $2.4 billion will flow into the Bitcoin ETF, while Valkyrie anticipates $200–400 million in its first week alone.
The Financialization of Bitcoin
The approval of the Bitcoin spot ETF means the financialization of Bitcoin, which means in short that financial markets, financial institutions, and gain greater influence, also known as ‘wall street is coming/here’. Big expansions can be on their way.
Financialization encompasses the increasing dominance of financial markets and instruments in the economy, marked by a larger financial sector, the conversion of assets into tradable securities.
Bitcoin's financialization would mean easier accessibility of assets to big money coming from institutional capital. These large-scale investors prefer not to engage in direct asset custody, do not want to use crypto custodians with a below worse reputation and want only one thing, which are standardized, auditable, and transparent systems for managing their investments.
Financialization on Mortgages
In 1983, the financialization of mortgages was pioneered. Larry Fink of First Boston, alongside Lew Rainieri from Salomon Brothers, invented the Collateralized Mortgage Obligation (CMO). This innovation laid the groundwork for the securitization of mortgage loans, leading to increased liquidity and investment in the housing market. BlackRock, which Fink later created in 1988, became a significant player in the financial sector, even untill this day.
Impact of Financialization on Real Estate
The financialization of real estate took a notable turn in 1997. Sall Zell consolidated his empire into Equity Office Properties (EOP), forming the largest and most significant Real Estate Investment Trust (REIT) of its time. EOP's establishment marked a significant shift, allowing big money to invest in real estate portfolios.
Transformation of Commodities by Financialization
The year 1998 saw the financialization of commodities. Jim Rodgers, known as the "Investment Biker," launched the Rodgers Total Return ETF. This enabled the commodification of various raw materials, making them accessible to a broader range of investors through a standardized, exchange-traded format.
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Bitcoin ETF Signals Local Top?
Despite the general optimism, concerns persist. BitMEX co-founder Arthur Hayes predicts a potential market correction of 30% to 40% and warns of the implications if a single ETF, such as BlackRock's, holds a large quantity of non-circulating Bitcoin.
Analysts caution that the initial market boost following ETF approval might not be sustainable due to limited capital inflow and the possibility of a market correction driven by investor profit-taking and market hedging.
“I'm ready to be wrong here, but looking at the current froth, I can't help but wonder if this will echo the Coinbase IPO — a significant event that led many to anticipate much higher prices afterward, but instead, it marked the peak for Bitcoin for a couple of quarters.”
Off to a False Start: ETF Edition
Let’s also address the boy who cried wolf a few days before the official approval by the SEC. In a bizarre series of events, a tweet from the United States Securities and Exchange Commission's (SEC) Twitter account was the reason many players both long and short were liquidated (on futures markets). A brief moment of excitement followed by utter disappointment.
This blatant market manipulation that is under investigation by even the FBI, was a remarkable event, to say the least.
Timeline of the SEC Twitter Hack
- 3:11 PM: The official @SECGov Twitter account announces that all Bitcoin ETFs had been approved, causing immediate waves across financial news outlets and social media platforms.
- 3:26 PM: SEC Chairman Gary Gensler alerts the public that the SEC's Twitter account was compromised and the previous announcement regarding Bitcoin ETF approval was false.
- 3:38 PM: The SEC reports regaining control over their Twitter account and promptly removing the inaccurate tweet regarding Bitcoin ETF approval.
- 3:42 PM: An official tweet from the SEC confirms the hack and clarifies that no such approval for Bitcoin ETFs had been granted.
Gold ETF Prelude to Bitcoin ETF?
Many draw similarities to gold in late 2004, when the long-awaited spot gold ETF, known as GLD, was launched amidst a sea of skepticism and conspiracy theories talking down the real physical gold. Contrary to the claims that the ETF would harm gold prices, GLD saw an eight-year upward trajectory.
Is this time different? As the promotion of gold as an investment was then met with resistance and ridicule, we see many similarities in beliefs around the role of digital gold. We will check back in a few years to see what ultimately happens.
ETF Asset Growth Predicted to Reach $50 Trillion in a Decade
According to Bank of America, if the current growth rate persists, the bank predicts a monumental rise to $50 trillion by 2030. Since the inception of the first ETF—the S&P 500 SPDR—in 1993, the U.S. ETF market has rapidly expanded to become a $4.3 trillion industry.
Passive equity funds, including index funds, have also experienced explosive growth, reaching a market size of more than $3 trillion in less than ten years, according to data from Morningstar.
But everything will depend on macroeconomic factors, and a favorable economic backdrop is anticipated to bolster net asset values and attract continued inflows of new capital into the ETF space.
Ethereum ETF Next?
With the approval of the Bitcoin ETF, many speculators and enthusiasts are looking at the likelihood of an Ethereum spot ETF approval, which seems not that unfavorable right now.
Market analysts are optimistic, estimating an high probability of its near-term approval. This optimism is bolstered by Ethereum futures' prior approval and recent court rulings that may influence the SEC's stance.
Several prominent financial institutions are vying for the SEC's approval of their spot Ether ETF applications. Among these are BlackRock, VanEck, ARK 21Shares, Fidelity, Invesco Galaxy, Grayscale, and Hashdex. These applications are set for SEC decisions on a rolling basis, from May 23 to August 7, 2024.
The approval of the Bitcoin spot ETF means a transformative phase for cryptocurrency investments and has the potential for significant capital inflows and increased market accessibility.
With many perspectives and speculation around the approval—legitimate news and misinformation alike—now becoming a reality, we will see whether this event has an immediate impact or only long-term implications. Can we draw similarities to the gold ETF from 2004, and can this be a greenlight in the future for other cryptocurrencies? Time will tell.
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*Important Disclaimer: While every effort is made on this website to provide accurate information, any opinions expressed or information disseminated do not necessarily reflect the views of Bitfinity itself. The information provided here is for general informational purposes only and should not be considered as financial advice.