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SEC approves 11 applications for Spot Bitcoin ETF - what does it mean?

On 10 January, the US Securities and Exchange Commission (SEC) approved eleven applications for the Spot Bitcoin ETF.

An exchange-traded fund (ETF) provides a simplified and regulated route for investors to gain exposure to Bitcoin's price without the complexity that comes with direct ownership. It works like a stock but tracks an underlying asset or index rather than an individual company.
The decision was expected and it is a big reason why the price of Bitcoin (BTC) has increased by about 170% from around $16.000 in November 2022 to around $43.000 today. Immediately after this decision, the price of BTC went up to almost $49.000 and then in less than two weeks dropped around 20% to almost $38.000. Many in the crypto world had expected this to happen and the reasons are as follows.
First the market was opened up to the Americans and then many traded because of the "buy the news". The inflow to new spot ETFs was and still is large but the sell-off has been even greater and the primary reason for this is Grayscale's Bitcoin Trust (GBTC). Holders were prevented from selling their investments until the trust's conversion to an ETF so investors are now leaving Grayscale's GBTC product to take their profits or move to competitors with lower fees. The outflow has also been high among European and Canadian players, perhaps because there are now several to choose from.

In the battle for market share, it is hardly surprising that the American fund giant Blackrock has taken the lead with over two billion dollars in its "Bitcoin Trust", but they are also the world's largest asset manager. Together with number two and three Fidelity and Bitwise, the purchases of these three are now at the same level as the outflow from GBTC of almost $ 4 billion, which is why the price has recovered somewhat. The fact that inflation is coming down and the market expects continued interest rate cuts is also positive news for cryptocurrencies. GBTC's fees were 1.5% and Blackrock is offering a reduced fee of 0.12% for the first 12 months or $5 billion in assets, whichever is achieved first, and then 0.25%, hence the large movement of capital. Comparatively, the fees for e.g. Bitcoin XBT certificates at Avanza are around 3% per year, not so cheap, but easy and accessible, and you can trade it on your ISK.
The single largest actor behind the GBTC sale is still the bankruptcy estate of the crypto exchange FTX, which filed for bankruptcy in early November after leaked documents first showed irregularities, and then the world's largest crypto exchange Binance withdrew from a deal to buy the company when it turned out that there were large holes in FTX's finances. The huge outflow of capital due to those who wanted to save their investments meant that the crash was a fact and BTC fell steeply but recovered fairly quickly.
Also affecting Bitcoin's price is China, which is struggling with its stock markets and has now banned all crypto-related activity to prevent capital flight.

With BTC available to the broad mass of investors who are not willing or able to buy crypto directly, ETFs are expected to grow and the price of BTC to follow suit upwards. However, it will probably take time and not alone account for the crypto market's next bull run. The market is looking for the next catalyst, which could be both the application Nasdaq has made to introduce option trading for BTC ETFs, which could be approved as early as the end of February, but also an Ethereum ETF that the market is waiting for.
It is likely that Bitcoin's next halving will also have a hand in driving the price up. Halving occurs approximately every four years and halves the compensation that miners receive after a certain number of blocks on the Bitcoin blockchain have been processed. The halving is not really governed by dates but by the creation of 210,000 blocks on the blockchain, of which miners receive a portion as payment. The next halving is scheduled for 240422 and effectively reduces the rate of new BTC by 50%. There is a cap of 21 million BTC which aims to maintain the value of the coin over time and the halving is intended to limit supply and control inflation. Already 3 years ago, nearly 90% of all BTC had already been created but only in 2140 is the reward estimated to be 0. Miners will then only receive a share of the transaction fees as an incentive to continue their work.

Below is a graph showing how the price has moved in relation to previous halves.

In the short term, it remains to be seen if the market will see more downside or if a recovery is imminent; in the long term, halving and continued accumulation through ETFs and direct purchases will probably lead to higher prices.

Today, Bitcoin ETFs have more than $20 billion in assets and could attract up to another $100 billion this year.

An interesting thing to do is to look at the history of ETFs and how supply and investment has increased as assets have been made available through them. From the first ones in the early 90s, it took another 15 years before the actively managed ones reached the market. So from 1 fund in 1993 to 102 in 2002 and nearly 1000 at the end of 2009, by the end of 2023 there were more than 11,500. Already in 2003, investments in ETFs were larger than in traditional mutual funds. Over the years, the winner of this "competition" has oscillated between ETFs and mutual funds depending on whether the market was strong or weak. The first S&P 500 SPDR ETF, launched in 1993, had more than $456.000.000.000 in assets under management in December 2023, so the fact that ETFs are now approved for BTC could be BIG.

// Svenska Forexgruppen

 

 

 

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