The launch of spot Bitcoin exchange-traded funds (ETFs) has long been hailed as a significant catalyst for the cryptocurrency market. Now, there is evidence to support these claims. Spot Bitcoin ETFs would provide investors with a convenient way to gain exposure to Bitcoin without the drawbacks associated with futures-based ETFs.
One major pitfall of futures-based ETFs is the roll-over losses in futures contracts. These contracts are typically priced at a premium to the spot price, resulting in expensive roll-overs as the front-month contract expires and the next one takes its place. This practice leads to higher costs and underperformance relative to the spot price, making futures-based Bitcoin investment options less attractive to institutional investors.
However, the Securities and Exchange Commission (SEC) has been hesitant to approve spot Bitcoin ETFs. Despite this, there are signs of a potential change in the regulatory landscape. The SEC recently rejected BlackRock’s spot Bitcoin ETF application but emphasized the specific issues that need to be addressed, such as the absence of a surveillance-sharing agreement with eligible spot Bitcoin exchanges. This presents an opportunity for applicants to rectify these deficiencies and resubmit their applications.
Additionally, Grayscale, a prominent digital asset management firm, recently won a favorable ruling against the SEC’s resistance to allow the conversion of its Bitcoin Trust to a spot ETF. The court found grounds to conclude that the SEC acted arbitrarily and capriciously in this matter.
The launch of spot Bitcoin ETFs could have a substantial impact on the price of Bitcoin. According to André Dragosch, the head of research at Deutsche Digital Assets, a 1 percent increase in the Assets Under Management (AUM) of Bitcoin-related Exchange-Traded Products on a week-to-week basis has historically resulted in an average 8.7 percent increase in the price of Bitcoin.
Another analysis by K33 Research suggests that the approval of spot Bitcoin ETFs could attract around 100,000 BTC (equivalent to $2.6 billion at current prices) in new investments within months. This influx of capital would significantly increase the AUM of Bitcoin-related ETPs, potentially by 28 percent. If Dragosch’s sensitivity metrics are accurate, this could lead to a cumulative increase of 243 percent in Bitcoin’s price. Such an increase would place Bitcoin’s price at $63,180, surpassing its previous all-time high.
In conclusion, the launch of spot Bitcoin ETFs has the potential to bring substantial benefits to the cryptocurrency market. By offering a convenient and cost-effective way for investors to gain exposure to Bitcoin, these ETFs could attract significant investments and drive up the price of the cryptocurrency. While regulatory hurdles remain, recent developments suggest that spot Bitcoin ETFs may soon become a reality, creating a bullish outlook for Bitcoin and the broader crypto sector.
