Are price-fuelling Bitcoin ETFs inevitable?
Cryptocurrency investors have been in a frenzy in recent weeks about the possible approval by the US financial regulator of spot Bitcoin Exchange-Traded Funds (ETFs).
Spot ETFs invest directly in underlying assets, typically stocks or bonds, at the current market price (spot price). They aim to replicate the performance of a specific index or asset class by holding a portfolio of the actual securities that make up the index.
A wave of some of the world’s largest asset managers, including BlackRock and Fidelity, have applied to the Securities and Exchange Commission (SEC) in last few weeks.
However, the globally influential watchdog has said that all the recent filings have been inadequate.
But, like many others, I remain confident that a spot Bitcoin ETF is inevitable. The SEC is flexing its muscles, but it will be a matter of time. These multi trillion-dollar asset managers are, of course, amazingly-well connected. And there won’t be just one company approved either, because this would imply that that regulator is a de facto ‘kingmaker’.
If I am right and we get a wave of approvals of ETFs, I am confident that crypto prices will skyrocket for four main reasons.
First, a Bitcoin ETF allows investors to gain exposure to Bitcoin without directly owning or trading the cryptocurrency. Such increased accessibility for both can lead to a larger pool of potential investors entering the market, driving up demand for Bitcoin.
Second, the introduction of a Bitcoin ETF will undoubtedly attract institutional investors who have strict regulatory requirements and risk management policies. They’ll bring with them capital, expertise and clout.
Third, ETFs are traded on established stock exchanges, providing liquidity and ease of trading. This liquidity will attract more traders and increase market efficiency, reducing price volatility. As such, increased liquidity and market efficiency can positively impact the price of Bitcoin and other cryptocurrencies.
And fourth, a Bitcoin ETF will generate significant mainstream attention and media coverage which will drive up demand and prices in the crypto market.
So, now we wait for the SEC approval. But with the influence and power of these financial titans, maybe it won’t be for too long?
Nigel Green is the CEO and founder of deVere Group