Bitcoin is having a sweet month and is up nearly 30%. The cryptocurrency has broken the level of $35,000 and is climbing to values ??not seen in more than a year. The reason is the possible approval by the US regulator of an ETF, an exchange-traded fund, on the spot price of bitcoin (spot in the jargon) that would pave the way for large institutional investors. The news, eagerly awaited and closely followed by retailers, could catapult the price and more than one already takes it for granted. While positions are being taken to take advantage of a potential rise, the price continues to rise.
The SEC, the financial authority that will decide whether the various ones on the table go ahead or not, had already approved futures ETFs for bitcoin and ethereum back in October 2021. Now another step would be taken with funds backed by real assets. As a great advantage, an ETF would provide more security to the investment. Unlike an unregulated market like the traditional one, investors would be exposed to bitcoin with “a regulated investment vehicle and a tax-protected product,” such as a pension plan or retirement fund, compares Simon Peters, expert analyst in crypto assets at eToro. The regulator doubts risks such as fraud or market manipulation.
Why is it so important if it goes ahead? With the yes, the doors are opened to the entry of large investors, until now suspicious of investment. “It could bring a significant influx of institutional investors,” Peters believes. Private banks, pension funds, hedge funds, international firms… “It would provide them with a regulated vehicle to invest in bitcoin without directly custodying the asset,” argues Javier García de la Torre, director of Binance Spain and Portugal. It would also benefit retailers, without as much technical knowledge or a risk tolerance that does not go with managing these assets, he points out.
Some see it as another era. “It is a paradigm shift for the asset,” says Javier Pastor, director of OTC on the Bit2Me platform. The change would facilitate the conversion between currencies and bitcoin and the entry and exit when investing or the issue of custody, he lists. An instrument like the ETF will adjust to your investment criteria, overcoming reluctance. It would be “the most important event since its creation. “It would give it recognition as the first digital commodity.” The ETF is a “simple-to-use” vehicle, with exposure through a traditional manager,” he adds.
Among others, giants such as BlackRock or Fidelity have applied for a bitcoin ETF and are awaiting regulatory approval. Binance sees it as a validation of the greater interest of traditional financial institutions in the sector and a possibility to further legitimize the industry.
Approval would lead to a contagion effect to the rest of the crypto planet. “It could lead to a positive price movement for other crypto assets, particularly among larger capitalization coins or tokens, such as ethereum,” Peters assesses. Furthermore, the same framework applied to approve the first vehicle can be replicated for other virtual currencies, he adds.
For now, the possible approval has returned optimism to the general tone. All eyes are on what the quote will do. For comparison, when the futures ETF was approved in 2021, it reached maximums, above $66,000 per unit, although a year later it was worth 70% less and has not even come close to this level since then.
Bit2Me points out that if the eight or ten proposals that are on the table for an ETF go ahead, the asset will have exposure to a management of about 15-17 billion dollars, which is done by institutional investors. If it captures only 1%-2% of that pie, it would be between 150,000 and 200,000 million in investment. A large part of the bitcoins are off the market: of the 19.5 million issued, only about 1.8-2 million units are on platforms and available for sale, Pastor calculates, being the ones that set the price. “The value may rise exceptionally and reach $200,000-$500,000 in the next cycle because there may not be liquidity to respond to the influx of capital,” he ventures.
This “next cycle” is precisely another of the factors that put upward pressure. Pastor refers to what comes after the halving scheduled for April 2024. With this operation the reward for block mining will be reduced from 6.25 bitcoins to 3.125, which would reduce the growth of the supply. It is something that happens every four years. “Historically, halving has triggered increases,” says Manuel Villegas, digital asset analyst at Julius Baer. Especially if demand continues. If to all this we add doubts due to a debt crisis, liquidity crisis or geopolitical risks and the search for refuge ends with a scenario that tends to rise. “Demand is strong and should strengthen further once ETFs are approved. The evidence of an imminent reduction in supply is increasing, which supports our constructive vision,” he explains.
The expectation is growing. Everyone looks for clues to know in advance whether there will be approval or not. This week Grayscale, another firm seeking to promote an exchange-traded fund, saw a federal court give it a push and overturn the position of the SEC, which was against converting a trust into an ETF. With that and some fake news that a BlackRock vehicle was already approved – the value jumped a momentary 10% with the rumor – and details that would show that the structures for the ETFs are seeing the light – another 10% up – the value has been escalating. They are signs of what the market response could be.
There is a date that appears marked in red on the calendar. It is January 10, 2024, when the SEC must have already ruled. A yes or no that will mark the bitcoin. “If the applications do not receive a favorable result by the deadline, there is a possibility that the price will sink in the short term,” warns Villegas. Then, in any case, new requests could be launched.
Taking the broader view, “approval or disapproval is not the only determinant of value. In the long term it is driven by a complex interaction of factors, including adoption, market sentiment, macroeconomic conditions and technological advances,” de la Torre reviews.
