How Will A Bitcoin Spot ETF Affect Bitcoin’s Price?
Photo Illustration by Omar Marques
What Is A Bitcoin Spot ETF?
A bitcoin spot ETF, traded on stock exchanges, holds bitcoin as its primary asset, unlike futures ETFs that rely on future bitcoin contracts. Spot ETFs directly track the price of bitcoin, offering investors exposure to its price movements without owning the asset directly.
This type of ETF has been discussed for over a decade, with recent applications from BlackRock and Fidelity indicating a growing interest with institutions. Bitcoin, the first cryptocurrency, operates on a decentralized blockchain, offering secure and transparent transactions independent of central banks.
Approval And Timing
The potential U.S. approval of spot bitcoin ETF could be imminent. Nate Geraci, President at The ETF Store, indicated that the U.S. Securities and Exchange Commission might soon approve these ETFs, with minor amendments requested and a potential Commissioner vote.
Impact On Bitcoin Price
The introduction of a bitcoin spot ETF is expected to significantly impact bitcoin’s price due to increased accessibility and liquidity. This increased demand, coupled with bitcoin’s finite supply, will likely drive prices up. A spot ETF would enable investors to gain exposure to bitcoin’s price movements through an approved investment vehicle, appealing to a broader range of investors.
Some forecasts suggest a more moderate impact on bitcoin’s price. A range of predictions fluctuate between $42,000 and $100,000 following approval.
On the bullish side, experts like Samson Mow, CEO at JAN3, predict bitcoin could reach $160,000 or even $1,000,000. Anthony Scaramucci also expects a big increase, predicting bitcoin could hit $330,000.
Supply and Demand
The approval of a spot ETF is expected to increase the demand for bitcoin, leading to a supply squeeze. According to PwC, global assets under management now total approximately $115 trillion. With bitcoin’s increased accessibility on stock exchanges, this could lead to large market inflows.
Long/Short-Term Holder Supply Ratio
While some long-term bitcoin holders might sell when prices are high, many, known as HODLers, hold on to their bitcoin regardless of market fluctuations. For these investors, bitcoin symbolizes an economic revolution, representing a stance against central banking and advocating for financial sovereignty.
This could lead to a shortage of supply. Along with bitcoin’s capped supply of 21 million coins, this could intensify the supply squeeze as demand increases, driving up bitcoin’s price.
Approving a bitcoin spot ETF would attract individual investors and institutional interest. SEC regulatory oversight of approved ETFs will instil a sense of security in investors seeking institutional endorsement, encouraging wider adoption.
Not Your Keys, Not (Quite) Your Coins
While the prospect of bitcoin spot ETF and the impact on the market is exciting, it’s important to remember the inherent risks. The term “Not your keys, not your coins,” underscores the importance of self-custody in digital currencies. Despite the ETFs convenience, investors must be wary of risks associated with third-party custody.
The potential U.S. approval represents institutional recognition of bitcoin. While these funds may not immediately acquire all available bitcoin, their influence on the market and bitcoin’s price is expected to be considerble.
The events this week are likely to highlight how institutional investment via bitcoin spot ETFs could shape the future of bitcoin and the digital asset space.
