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Business News/ Brand Stories / Will Spot Bitcoin ETFs Herald a Whole New World?
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Will Spot Bitcoin ETFs Herald a Whole New World?

Is this scenario fairly certain, or do some important analysts see things differently?

Spot Bitcoin ETFPremium
Spot Bitcoin ETF

Some people have been saying that an SEC approval of Spot Bitcoin ETF applications would inject the token’s price performances with steroids. Others, like Kraken’s Thomas Perfumo, have their eye on the overall enrichment the sector would gain from institutional interest. As Perfumo sees it, there are “40 trillion or so of retirement assets in the US that currently don’t have a very intuitive means of investing in crypto", which are just waiting to gush in when the floodgates are opened.

Indeed, it seemed a lot was riding on whether or not the SEC would give the green light when, four days into the new year, Bitcoin prices shuddered at the thought of a red light appearing. The token sunk 9.2% on the news that Matrixport believed all ETF applications would be rejected. “The market is keenly focused on the potential for an ETF approval, so even small whiffs of news can cause relatively big market moves", explained Matthew Hougan of Bitwise Asset Management.

However, even in a world in which the SEC gives the thumbs up, it’s not at all clear how much upside will come to token prices as a result. Much of the 172% performances bitcoin has already clocked up in the past year were premised on SEC approval in early 2024, so the event itself could fall flat. Knowing this, many traders may use the approval as an opportunity to cash in on their Bitcoin and this, of course, would actually drag prices down. K33 Research, for one, “don’t expect mega immediate inflows to the ETFs".  CryptoQuant believe SEC approval would spark a Bitcoin price crash down to $32,000.

The longer-term bullish viewpoint is based on the presumption that, in the event the Bitcoin ETF became a reality, fund managers would purchase billions of dollars’ worth of Bitcoin, which would then bolster demand forces against supply, thus propping up prices. Is this scenario fairly certain, or do some important analysts see things differently?  

Killing Bitcoin with Kindness

Arthur Hayes, the CIO (chief investment officer) of Maelstrom, is one of those who begs to differ with the above-mentioned view. If spot ETFs “are too successful, they will completely destroy Bitcoin", he suggests. Hayes is imagining a future in which asset managers like BlackRock consume all the available bitcoin with the use of their healthy bank balances, which would slow blockchain transactions to a snail’s pace. Following this, Bitcoin miners (who secure network transactions for a fee) would lose incentive to continue with their work. “As a result,"says Hayes, “they would shut off their machines. Without the miners, the network dies and Bitcoin vanishes". Here is a scenario quite different to the one envisioned by Perfumo, and yes, it should be taken into consideration, especially since the market has seen dazzling crypto dreams dashed before now.

Fresh Inflows?

Returning to Perfumo’s point about the “40 trillion or so" of assets just waiting for the safety and convenience of a Spot Bitcoin ETF, JP Morgan see things differently and here’s why: For a start, if one looks at the spot ETFs that already exist in Canada and Europe, one can see that the floodgates were not, in fact, overwhelmed by institutional interest once approval came. Secondly, even if lots of cash comes into the ETFs, it may simply be channeled out of existing funds like Bitcoin futures ETFs. There is reason to wonder, then, whether the cascades of money flowing into Spot Bitcoin ETFs would really originate in the same old assets pools that were sitting around before. As to the token-price upside expected by some people from the Bitcoin halving event coming up in a few months, this is “largely priced in" already, says JP Morgan.

The Landscape Ahead

Setting sights a little bit closer, onto March 2024, Hayes foresees a plummet in equities which will bring down Bitcoin together with them. He warns us to brace for a “liquidity rug pull" that will spark “a vicious washout of all the crypto tourists". 

A final point that should be made is that the other key premise, aside from SEC approval, underlying last year’s crypto bonanza was anticipated dovishness on the part of the Fed. The problem is that stock traders in the first week of this year seemed to have second thoughts on that very point.

Disclaimer: This article is a paid publication and does not have journalistic/ editorial involvement of Hindustan Times. Hindustan Times does not endorse/ subscribe to the contents of the article/advertisement and/or views expressed herein. 

The reader is further advised that Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. 

Hindustan Times shall not in any manner, be responsible and/or liable in any manner whatsoever for all that is stated in the article and/or also with regard to the views, opinions, announcements, declarations, affirmations etc., stated/featured in same. The decision to read hereinafter is purely a matter of choice and shall be construed as an express undertaking/guarantee in favour of Hindustan Times of being absolved from any/ all potential legal action, or enforceable claims. The content may be for information and awareness purposes and does not constitute a financial advice.

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Published: 30 Jan 2024, 12:45 PM IST
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