IntoTheBlock takes a look at the recent Bitcoin and Ethereum ETFs development, explores their effects, and analyzes how investors have been positioning in response.
As we start this new quarter, it's beneficial to review one of the primary subjects that were covered in the previous quarter, Q3 2023. The crypto market's third quarter in 2023 concluded much as it had begun, with ETF-related headlines taking precedence. However, this time around, the discussion has transitioned from Blackrock's request for the first Bitcoin ETF to VanEck's endorsement of the inaugural Ethereum futures ETF.
In this article, we dive into the latest developments regarding Bitcoin and Ethereum ETFs, explore their effects, and analyze how investors have been adjusting their positions in response.
The Grayscale products have served as an indicator, reflecting the market's estimation of the likelihood of ETF approvals. Despite Bitcoin (BTC) and Ethereum (ETH) experiencing a slight decline of around 10% in prices this quarter, Grayscale's GBTC maintained stability, and Grayscale's ETHE saw a notable increase of over 10%.
Via ITB's Capital Markets Insights
On August 29, Grayscale secured a victory in their lawsuit against the SEC. The courts ruled that the SEC's decision to prevent the transformation of its GBTC product into an ETF was "arbitrary and capricious." This legal outcome sparked a robust rally in GBTC. With the introduction of Ethereum futures ETFs, it seems that the SEC may be backing away from its case against Ethereum. This development increases the possibility of a spot ETF approval, especially if one is granted for Bitcoin.
It seems that Cathie Wood's Ark Investment Management shares this belief, as they submitted an application for the first spot Ethereum ETF in early September. In both scenarios, the anticipation is that Bitcoin and Ethereum spot ETFs will attract significant investment inflows, offering both institutions and retail investors a reliable means of accessing the two largest cryptocurrency assets. As expected, market participants seem to hold a bullish outlook with the prospect of these developments on the horizon.
Back in June, Blackrock's remarkable track record, with 575 out of 576 ETF applications approved, coupled with its status as the world's largest asset manager holding approximately $10 trillion in assets, renewed optimism for the approval of a Bitcoin spot ETF. In addition to the applications from Blackrock and Grayscale, there are more than ten pending applications in the pipeline for a Bitcoin spot ETF.
The simultaneous listing of 9 Ethereum futures ETFs on Monday, October 2, hints at the possibility that the SEC might adopt a similar approach when considering the approval of a Bitcoin spot ETF. Rather than individually accepting each application within their respective deadlines, the SEC might opt to grant a broader range of approvals simultaneously to avoid favoring any specific entity.
Furthermore, there has been noticeable on-chain activity in the form of Large Holder Accumulation. Addresses holding at least 0.1% of Bitcoin's supply have reported significant net inflows during the entirety of Q3. When Bitcoin's price dipped to $25,000, large holders witnessed a remarkable influx of $600 million in just a single day. Subsequently, Bitcoin has experienced three additional surges of over $400 million in net inflows to large holders, indicating that there is substantial interest steadily accumulating in the cryptocurrency.
Via Bitcoin's Ownership Indicators
These inflow activities have taken place concurrently with centralized exchanges experiencing outflows, indicating that organic buyers are receiving these funds rather than just addresses associated with centralized exchanges. Given the SEC's repeated delays in making decisions regarding Bitcoin spot ETF applications, the patience of these large holders may indeed be put to the test.
While the idea of a Bitcoin spot ETF has been under discussion for several years, it is essential to understand its profound significance. Unlike the Bitcoin futures ETF, which received approval in late 2021 and deals with derivative contracts, this ETF would directly acquire actual Bitcoin. A spot ETF would open the door for traditional market participants to invest in Bitcoin, potentially exerting upward pressure on its price.
The involvement of significant players in the traditional financial ecosystem, coupled with favorable on-chain data and the rising activity of cryptocurrency whales, indicates a growing confidence in the potential of cryptocurrencies and the optimism surrounding the approval of a Bitcoin ETF. Even though the approval of a Bitcoin spot ETF remains uncertain, the recent developments signify a changing landscape and a closer alignment between the traditional financial system and the cryptocurrency market. These developments underscore the changing dynamics and the growing acknowledgment of cryptocurrencies as a valuable asset class.
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