A U.S. Bitcoin spot ETF could catalyze the start of a financial revolution, cementing crypto as the future of money.
Unlike the more popular Bitcoin futures ETFs, which track contracts that speculate on future BTC prices without owning any real bitcoin, Bitcoin spot ETFs involve directly buying and selling the cryptocurrency itself — thereby influencing its supply/demand dynamics and price.
On June 15, 2023, BlackRock, one of the world's largest investment companies, filed for its first Bitcoin Spot Exchange Traded Fund (ETF) in the United States.
This was the most significant filing, given that BlackRock currently has over $9 trillion in assets under management and a more than 99.9% approval rate for its ETF applications. Given its size and success rate, BlackRock is widely expected to be among the first to have a Bitcoin spot ETF approved in the U.S.
But BlackRock isn’t the only firm seeking to launch a Bitcoin spot ETF in the States. Right now, at least a dozen Bitcoin Spot ETFs are being reviewed by the SEC, including offerings from VanEck, Bitwise, and Grayscale.
Also Read: Bitcoin and Ethereum ETF Timeline: Key Dates for BTC and ETH Spot ETFs
It is widely thought that the approval of a Bitcoin spot ETF in the United States would open the floodgates to various institutional investor types, including pension funds, endowments and mutual funds, offering them a regulated and straightforward way to invest in Bitcoin.
Today, we are going to analyze the potential impact the approval of a Bitcoin spot ETF could have on the crypto market in the months and years to come:
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Immediate Impact
The market reaction to BlackRock’s spot ETF announcement was immediate. Bitcoin’s price was sent soaring from ~$25,000 on June 15 to over $31,000 a month later — smashing through several long-term resistances.
Should a U.S. Bitcoin ETF be approved, Bitcoin could follow a similar trajectory to gold — which had its first spot ETF approved in the U.S. back in June 2004.
Despite trading in a narrow range for more than two decades before the spot ETF approval, the price of gold experienced dramatic growth shortly after. The asset was sent soaring from around $350 to over $1,820 by August 2011 — equivalent to a return of approximately 346% in 7 years.
By providing easier access and exposure to gold for a broad range of investors, the gold ETF attracted substantial capital inflows, significantly boosting demand and consequently driving up the price of gold. Perhaps more importantly, the price of gold increased largely without pause for seven years.
Should Bitcoin follow the same path, it could be sent into a new bullish supercycle that could last close to a decade. If it follows the 44.34% simple annual return it achieved over the past 10 years, BTC could reach $102,500+ within 3 years or $141,500+ within five — assuming a base value of $44,000.
Bitcoin dominance tends to decrease towards the later phase of a bull market and has at times fallen below 35%. Should this happen again, the altcoin sector as a whole could be set to grow faster than Bitcoin, leading to substantial gains for major altcoins.
Taking the above figures into account, Bitcoin at $102,500 would have a market capitalization (mcap) of $2 trillion. If this represents just 35% of the total crypto mcap, this would place the altcoin mcap at just north of $3.7 trillion — or around 383% higher than it is today.
Learn more about the crypto market cap here.
Mid-term Impact
If insights by Glassnode prove accurate, roughly $70.5 billion of new capital could flow into Bitcoin after a spot ETF is approved in the U.S. This was calculated by estimating that 10% of the combined AUM of the SPY Vanguard Total Stock Market and Vanguard Total Bond Market ETFs in addition to 5% of the gold market AUM would be redirected to Bitcoin spot ETFs.Though this represents less than 10% of the current Bitcoin mcap, it could significantly drive up the price of BTC, since just a small fraction of the Bitcoin supply is liquid and available to buy on exchanges and OTC desks.
While it is difficult to estimate how this will affect the price of Bitcoin, a recent analysis by Galaxy Digital suggests ETF inflows could move the price of Bitcoin +74.1% within the first year of ETF approval. This is the equivalent of sending Bitcoin from $44,000 to $76,500 in a year.
According to a recent market forecast by leading international bank Standard Chartered (per Bloomberg), Bitcoin could be poised to reach as high as $120,000 by Q4 2024. This would be largely driven by a reduction in miner selling.
As miner profitability increases, large mining outfits may switch over to a longer-term holding strategy. This could dramatically reduce selling pressure as newly minted coins are held rather than sold by miners.
According to estimations, just 20-30% of newly mined Bitcoin may be offloaded on the market once its price reaches $50,000, down from close to 100% for Q2, 2023. This prediction was further reinforced last month when Standard Chartered analyst Geoff Kendrick clarified to Business Insider that Bitcoin could hit $50,000 by the end of 2023 and $120,000 by the end of next year.
Meanwhile, according to Bloomberg analyst Vildana Hajric, Bitcoin may be poised to reach over $500,000 after smashing through the crucial $42,000 threshold. This event may kick off the start of a bullish supercycle, sending the value of BTC soaring for an extended period beyond the normal “4-year cycle”.
Long-Term Impact
By broadening the ownership base to include a range of new institution types, Bitcoin Spot ETFs could dilute the influence of large Bitcoin holders (aka "whales") helping to reduce volatility and the risk of marketing manipulation.
That said, some believe that Bitcoin Spot ETFs could introduce new sources of volatility. In particular, if these ETFs involve "cash creation" — that is the shares are created in exchange for cash — this could lead to increased trading around the time of fixing and create volatility due to the activities of arbitrageurs.
Given that Bitcoin is considered by some a better store of value than gold and has a known finite supply, there is reason to believe that the cryptocurrency could eventually go on to surpass gold’s market capitalization. As of writing, this stands at around $13.7 trillion whereas Bitcoin's mcap currently stands at ~$861 billion.
For Bitcoin to achieve mcap parity with gold, it would need to achieve around 1,500% growth from here. This would place the value of a single BTC at ~$660,000. Considering Bitcoin has achieved an average return of 44.34% over the last 10 years, it would take another 7 years and 4 months for Bitcoin to reach $660,000.
Some of the more bullish predictions even plot Bitcoin’s future value even higher. This includes the famous $1 million prediction by ARK Invest Chief Investment Officer (CIO) Cathie Wood.
As per a recent interview with the Wall Street Journal, Wood indicated that Bitcoin would hit a "base" of $650,000, with the bull case being in the $1 million to $1.5 million range. At this price, Bitcoin would have a larger market capitalization than gold.
The Bitcoin stock-to-flow model predicts Bitcoin's price based on its scarcity, comparing existing stockpiles (stock) to new supply (flow), suggesting price increases as Bitcoin becomes rarer over time. If the model proves to be an accurate prognostic indicator, Bitcoin could reach over $1 million per coin by June 2025.
For the more wildly optimistic, the approval of a Bitcoin spot ETF in the U.S. could act as one of the first dominos in a chain of events leading to a major shift in global financial systems.
It could signal a growing acceptance of cryptocurrency as a legitimate and stable investment, potentially encouraging other countries and financial institutions to diversify their reserves and transactions away from the US dollar.
This move could accelerate the process of “de-dollarization”, as Bitcoin and other cryptocurrencies gain traction as alternative global trading and reserve currencies, reducing the world's reliance on the US economy and the dollar's dominance in international finance.
How Did European Spot ETFs Affect the Market?
Though there are currently no regulated Bitcoin Spot ETFs available in the U.S., Europe has already proven itself as fertile ground for Bitcoin Spot ETF providers.
In the last two years, at least 10 Bitcoin Spot ETFs have been made available in Europe. The first to be approved is the Jacobi FT Wilshere Bitcoin ETF, which was launched by London-based Jacobi Asset Management. It was listed on Euronext Amsterdam and is regulated by the Guernsey Financial Services Commission (GFSC).
Although Bitcoin Spot ETFs have been available in Europe for more than two years, the availability of these products had little to no impact on the price of Bitcoin. While this may have been at least partly due to the poor economic situation at the time, several other factors likely played a bigger role.
Firstly, European financial markets are far smaller than U.S. markets, with significantly less liquidity. In addition, the largest institutional investors in the EU have roughly $1 trillion to $2 trillion in assets under management (AUM) whereas BlackRock alone has an AUM larger than the five largest European institutional investment firms.
The U.S. financial market has a broader global influence and a larger base of institutional investors. Consequently, a U.S. Bitcoin Spot ETF would likely attract more significant investment flows and have a more substantial impact on Bitcoin's price.
Why a U.S. Spot ETF is Different
The approval of a Bitcoin spot ETF in the U.S. would be a significant milestone for the burgeoning cryptocurrency sector and the more established traditional financial industry.
As one of the world’s largest financial markets and most influential global economies, the United States often serves as a benchmark for other nations. When the U.S. embraces a new financial product like a Bitcoin spot ETF, it can set a precedent, encouraging other countries to follow suit. This can lead to broader global acceptance and integration of such products into mainstream financial systems.
Eventually, this could manifest as more countries accepting Bitcoin, replacing legacy financial technology with blockchain-based alternatives, and adding credibility to Bitcoin as a legitimate and broadly accepted unit of value.
Moreover, the U.S. market's size and liquidity are unparalleled, and the introduction of a Bitcoin spot ETF there could attract massive inflows of capital. This would not only increase the demand and potentially the price of Bitcoin but also enhance the cryptocurrency's acceptance among institutional and independent investors alike.
In contrast, European markets, while significant, do not match the U.S. in terms of global financial influence or the capacity to attract substantial capital inflows.
As such, the approval of a Bitcoin spot ETF in the United States represents a crucial milestone in the legitimization of Bitcoin and other cryptocurrencies as an asset class. This, in turn, could help foster the development and expansion of the digital currency market while making Bitcoin more appealing as a reserve currency candidate.
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