SEP 6, 2023
Why Bitcoin Spot ETF Approval is a Windfall for Investors
Why Bitcoin Spot ETF Approval is a Windfall for Investors. What happened with Grayscale and comparison with Gold ETF approval.
For those who missed it, there is an ongoing race for the first US Spot-traded Bitcoin ETF.
There are many US-based asset managers who are trying to get their first Spot-based Bitcoin ETF.
Since June 15, BlackRock, the world’s largest asset manager with over $8 trillion worth of assets under management, has joined the race as well.
Others together with their dates of filling and deadlines by SEC below:
Spot Bitcoin ETF decision deadlines. Source: Bloomberg/Twitter
The main difference between spot-based ETF (coming) vs. futures-based (existed since 2021) is the underlying asset. In the first case, it’s Bitcoin itself, and in the second derivates (futures) of Bitcoin. Overview of the differences in this article.
Why is it important?
The general idea is that approval will unlock a substantial demand from investors, who are not comfortable managing all the technology & risk behind Web3, like wallets and exchanges, but still want to invest in Bitcoin.
For better understanding, let’s circle back 20 years.
On March 28, 2003, the first gold-backed ETF was introduced. On the Australian stock exchange.
On November 18, 2004, an ETF on NYSE was launched - SPDR Gold Shares (NYSE: GLD). In 3 trading days, this ETF surpassed $1 billion in assets under management.
Long story short, gold skyrocketed, soaring from around $350 to $1,920 in 7 years (548%).
Of course, there was a huge financial crisis in the middle, which helped the movement, but even considering the pre-crisis levels (Feb’07 $670), that’s a solid 191% in 3 years.
Gold price chart. Source: https://goldprice.org/
So, what happened?
Last year, the SEC rejected Grayscale’s initial application to convert its publicly traded Bitcoin Trust (GBTC) to an ETF.
Grayscale argued that the SEC had acted arbitrarily and pointed out they already approved futures ETFs, which are similar in nature (tied to BTC).
Last week, a federal judge ruled in favor of Grayscale.
However, this doesn’t mean they approved the Spot-traded ETF. In simple terms, the SEC needs to find better reasons to continue blocking this conversion and with that Spot-traded ETFs.
Point to consider
The SEC is picking dates when they will approve individual ETFs. This means they can choose which asset manager will be the first to offer this product in the United States, and with that probably have some early advantage over the others.
Many experts are pointing out this is not a good approach and the SEC should approve the product itself and allow all those that filled for one to offer them on the same date.
And what about ETH?
There is a similar story ongoing on the Ethereum side. Just delayed.
Over a dozen different companies already applied for Ethereum futures-based ETFs - approved in 2021 for Bitcoin.
The market is optimistic we will have approval in the next weeks.
My 2 cents
This approval is not a silver bullet for liquidity, it’s a first step in a more complex process.As always, people are talking about Bitcoin when the price goes up. Today it’s once a week? Maybe… When we get over 40k, it’ll be twice a day. Above 60k you’ll see Bitcoin mentioned every time you turn on your TV.
And with that comes the interest from investors. Many still need to see the validation that we have another bull market coming, and that Bitcoin and Web3 are not just a bubble that popped last year.
But once that happens, investors will have more options to participate (ETFs), and it will give us the upper part of the hockey on the charts, since the higher we go, the more people won’t be able to resist.
Another point to consider is the upcoming halving, which should happen in April 2024, then the Nasdaq close to ATH, which might result in more investors turning their profits from the Nasdaq rally into different assets, and lastly, the FED and general liquidity.
All of this seems like a mixture of strong bull signals, that will take effect in 2024. Before that, we still might see a sell-off —> typically, something breaks before it goes up, which might be raising consumer debt, empowered by upcoming student loans, it might be China and their shadow bank crisis, it might be low volume and sell-offs from FTX and Silk Road, simply anything, that will spark the fire of further price pressures.
But, I’m very optimistic going into 2024 for both BTC and ETH. As a result, I’m even considering switching my traditional markets DCA (balanced portfolio of stocks, bonds, and commodities) to BTC and ETH.
As always, be careful, especially with trading volumes hitting record lows.