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09/04/2024

What does listing a Bitcoin ETF mean and its impact on the cryptocurrency?


What does listing a Bitcoin ETF mean and its impact on the cryptocurrency?

After months of anticipation and a bitter legal battle, the US Securities and Exchange Commission approved the first Bitcoin trading funds at the beginning of this year. This marked a watershed and historic moment, during which cryptocurrency enthusiasts bet on attracting new individual and institutional investors to the market.


The largest US securities regulator granted permission on Wednesday to the sponsors of 10 exchange-traded funds, ranging from well-known players such as Fidelity and Invesco to digitally focused newcomers including Grayscale and Arc Invest. Standard Chartered Bank expects to invest between $50 billion and $100 billion in the fund.


The Financial Times quoted Jad Qamir, CEO of Melaneon Capital, the first Bitcoin ETF in the European Union: “It is a big milestone, an acknowledgment that Bitcoin is a large-scale traditional investment. We are opening the doors to Wall Street.”


“Bitcoin ETFs are a paradox; they represent both a challenge and an opportunity,” says Yekita Sachdev, CEO and founder of Luna Media. “While ETFs could undermine the concept of personal control over Bitcoin ownership, the participation of large institutions is crucial.” ETFs can impact trading volume on exchanges, but their development plays a crucial role in mass adoption and shapes the future of Bitcoin.


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As for Anastasia Ulyanova, co-founder of ARIA, she said: “Discussions about the possibility of launching Bitcoin traded funds began when non-specialists in the world of digital currencies started hearing and talking about cryptocurrency. The relationship between traditional finance and decentralized finance eventually turned into a game of cat and mouse with the US Securities and Exchange Commission (SEC) for ten years.

Companies and funds are competing to attract Bitcoin investors.

The SEC's decision on Bitcoin ETFs is appropriate given the halving of the Bitcoin mining reward (to reduce the number of new coins entering the network) in April.


There could be a double victory for the world of cryptocurrencies. The growing interest and expansion of cryptocurrencies in the world of traditional finance may indicate acceptance of the proposed ETFs and recognition of Bitcoin, and more broadly of crypto and blockchain technologies, which will be very well received by the cryptocurrency community. “We can never know for sure what the future holds.”


“Recent interactions between the SEC and issuers, including amendments to several filing-related documents, suggest that conditions are ripe for a positive outcome this week, and perhaps for most if not all senders,” said Budeep Rangar, CEO of Fineqia. Who has completed the required documents correctly?


The introduction of Bitcoin ETFs is expected to attract new groups of investors, strengthening the relationship between traditional finance investors and the digital asset market. However, it is important to realize that market participants often anticipate news events, and with over 90% approval expected several months later, the SEC's decision has already been largely taken into account by the market. In the weeks following potential approval, there may be a decline in trading levels.


Talal Al-Tabbaa, co-founder of CoinMENA, said: “The US Securities and Exchange Commission’s approval to list exchange-traded funds that track Bitcoin is almost certain because America will not accept the loss of large investments resulting from allowing this step, which is what investors can do. Waiting impatiently.”


Implications of Bitcoin price decision


Standard Chartered Bank, in a research report dated January 8, 2024, confirmed that the expected inflow into the fund, between $50 billion and $100 billion, is consistent with the bank’s view that the price of Bitcoin is at $100,000 until the end of 2024. If inflows are achieved, the bank believes that a scenario of $200,000 for Litecoin by 2025 is possible. 

The bank based its expectations and estimates on gold prices after launching the first gold exchange-traded fund in the United States in November 2004.

 Compared to gold ETFs, the assets under management (AUM) of gold ETFs, as of December 2023, amounted to about $209 billion, half of which was in North America, according to what analyst Ryan Lee, director of Bitgate Research, told the media.

 He added: “Currently, the volatility of Bitcoin is about 3.6 times that of gold. If Bitcoin ETFs are approved, assuming that financial companies want to invest in Bitcoin with exposure to risks similar to those of gold, they must invest about 30 to 40 billion dollars.”

Likewise, given the influence of gold ETFs on the market, the first gold-backed ETF launched in the United States was the SPDR Gold Trust, which debuted on the New York Stock Exchange on November 18, 2004, with gold closing price of $444.3 per ounce in that day.

In the eight years since the fund's launch, gold prices have risen more than 60%, according to Arabian Business calculations using Tradingview data.


Cryptocurrency market in 2024.


Gracie Chen, managing director of Bitget, said in statements to the media that the Bitcoin exchange-traded fund will remain the biggest trend in the market this year, but there are other positive forecasts worth considering. This includes the expectation of the Bitcoin mining reward halving in April and the Ethereum Dencun upgrade, Circle's potential entry into the market via an IPO, and the end of rising interest rates in the US.

Halving the Bitcoin mining reward, also known as “halving,” will effectively reduce its supply.


Challenges and hypotheses.


Consumer and investor groups have warned that making the product available through ETFs would encourage retail investors to move money into a sector known for frequent scandals and wild price swings. Dennis Kelleher, president of Better Markets, said the approval is “a historic mistake that will not only unleash cryptocurrency predators on tens of millions of investors and retirees but will also potentially undermine financial stability.” SEC Chairman Gary Gensler tried to split the difference in a statement. He said: “Although we have agreed to list and trade some spot Bitcoin shares traded on the stock exchange today, we have not approved or endorsed the Bitcoin currency,” calling on investors “to remain cautious about the countless risks associated with Bitcoin and products whose value is linked to cryptocurrencies.”


The SEC has held out against a Bitcoin ETF for nearly a decade, but in late 2021, it allowed ProShares to launch the first of many ETFs containing Bitcoin futures. 

After Grayscale filed its lawsuit, popular ETF providers began filing their own applications and the SEC began working with them to improve their proposals. In recent months, issuers have explained how they will protect investors from market manipulation, identified some of the financial institutions that will create and redeem shares, and have shifted to a cash-based creation method.

Cathie Wood (an American investor and founder, CEO, and CTO of ARK Invest) described Bitcoin as a “public good” and said she was comfortable using the product as a loss leader. She said the SEC was "one of the most skeptical regulators in the world, and they got to the finish line and approved it, and you know there's a lot of testing going on around this."


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