Prior to approval of spot Bitcoin (BTC) exchange-traded funds (ETFs), the crypto industry was seemingly under the impression that the move would trigger a bull run. However, it’s believed that the cryptocurrency situation has been ‘topsy-turvy’ than what investors would have liked. Despite BTC price crossing the $47,000 level, post US Securities and Exchange Commission’s (SEC) authorisation of 11 spot BTC ETFs, prices sustained a downward trend after eight of them began trading. “I believe the launch of ETFs has impacted BTC investments by providing a regulated avenue for traditional investors. It has increased liquidity, reduced barriers to entry, and boosted mainstream acceptance. The gains in BTC price, despite periodic declines, could be attributed to institutional interest, increased adoption, and recognition of BTC as a store of value. Additionally, macroeconomic factors, such as inflation concerns, might have driven investors towards digital assets as a hedge,” Sumit Ghosh, co-founder and CEO, Chingari, a Web3.0 live streaming application, told FE TransformX.
From what it’s understood, the approval arrived at the back end of warnings, especially by Gary Gensler, chairperson, US SEC. In an official statement, Gensler stated that while they approved the listing and trading of certain spot BTC exchange-traded product (ETP) shares, they didn’t approve or endorse BTC. “Investors should remain cautious about the myriad risks associated with Bitcoin and products whose value is tied to crypto,” Gensler added. Going by media reports, BTC recorded a downfall in price by falling underneath $40,000, which was last seen during early December. Reportedly, two weeks after the spot BTC ETF approval, BTC price clocked the trend of falling by more than 15%. Market research suggests that the fall in BTC price can be attributed to Grayscale witnessing high outflows through sell-offs, which also included FTX sell-off of its one billion dollar worth assets, after the financial platform received approval for its spot BTC ETF application. Another suggestion on the BTC price situation has been the cryptocurrency’s inability to match up with the increasing traditional stock prices. Glassnode, an on-chain analytics firm, specified that the BTC price drop happened over spot profit and leveraging of derivatives.
“I think attention is being focused on the “Sell the news” effect on prices, post the spot BTC ETF approval, as there was a fall in prices to below $40,000. However, now they seem to have found some support at these levels. What many seem to be not noting is that there has been BTC selling by Grayscale’s Bitcoin Trust (GBTC), as it has seen outflows of almost five billion dollars till now, resulting in a decline in prices. Additionally, FTX bankruptcy estate has been selling its one billion dollar GBTC to cause downward pressure on prices. Both of these are now nearing exhaustion, and we should witness the impact of the inbound demand, in the coming weeks and months. We can already see the price rebounding above $43,000,” Parth Chaturvedi, investments lead, CoinSwitch, a crypto application, highlighted.
In spite of drawbacks, market signs imply that authorisation of the spot BTC ETFs will benefit a large number of investors, which could also bring in investors who find it difficult to indulge in cryptocurrency investments over regulatory concerns. Post three days of spot BTC ETF trading, net amount of inflows stood at around 21,000 BTC, and was closing in at approximately one billion dollars. In recent developments, market reports showed that BTC secured a nearly two percent rise in value in January 2024, which shows BTC to be on an increasing track for a fifth consecutive month. Analysts from Standard Chartered, a multinational bank, have already predicted that the spot BTC ETFs could clock to an amount worth $50-100 billion within this year, while others expect the amount to be around the $55 billion range within five years. As of January 31, 2024 (1.34 pm, Indian Standard Time), BTC is trading around the $43,000 mark, with market capitalisation dropping by close to 0.6% and the 24-hour volume increasing by about 0.3%, according to CoinMarketCap, a crypto price-tracking website. The website also mentioned that nine spot BTC ETFs have overall collected 150,000 BTCs, amounting to around $6.5 billion is assets under management (AUM).
Moreover, it is indicated that in the future despite decline in BTC price, after approval of spot BTC ETFs, the long-term future of the cryptocurrency is headed towards an increased mainstream acceptance over drafting of regulatory guidelines. “I believe the BTC ETF approval has been regarded as a watershed moment for the BTC and cryptocurrency market in general, which is not just a short-term trend but something that should play out in the months and years ahead. Institutional investors seem to take longer to deploy investments, and the market could see further strengthening of inflows in the coming weeks and months,” Kumar Gaurav, founder and CEO, Cashaa, a blockchain-based platform, concluded.
