Bitcoin

Gary

After nearly a decade of rejection, 11 Bitcoin ETFs have been approved and began trading this week, marking a turning point in the history of Bitcoin. With the halving coming up in a few months, all the conditions are in place for a massive bull run and a huge adoption.
<h2 id="h-what-is-the-difference-between-a-spot-etf-and-a-future-eft">What is the difference between a spot ETF and a future EFT</h2>
The <a href="https://www.cointribune.com/en/bitcoin-we-tell-you-everything-about-etfs/" target="_blank" rel="noopener noreferrer nofollow">spot ETFs and the future ETFs</a> differ mainly in the way they are exposed to their underlying assets.
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The <a href="https://fr.wikipedia.org/wiki/Fonds_n%C3%A9goci%C3%A9_en_bourse" target="_blank" rel="noopener noreferrer nofollow">spot ETFs</a> invest directly in the underlying assets, thus reflecting the price of these assets directly.
For instance, a gold spot ETF would physically hold gold. In contrast, the futures ETFs do not hold the underlying asset but hold futures contracts over that asset
These futures contracts specify the purchase or sale of an asset at a fixed price at a future date, which can result in a divergence between the price of the future contract and the current price of the underlying asset.
This difference affects the performance and risk of the ETF.
<h2 id="h-the-sec-has-capitulated">The SEC has capitulated</h2>
When the official SEC X account was hacked and a false ETF approval announcement went out, causing massive price fluctuations and over $300 million in liquidations, the SEC chose to publish the approval document on its website.
It’s important to step back and understand why the SEC had rejected so many applications before this week’s events. The main reason it rejected them all these years was the suspicion of fraud and market manipulation in the bitcoin spot market.
However, when the SEC approved the Bitcoin Futures ETFs that track the underlying bitcoin spot market, it raised eyebrows and eventually filed a lawsuit against Grayscale.
Ultimately, the court ruled that the SEC’s decision to deny Grayscale the conversion of its Bitcoin trust into a Bitcoin spot ETF and to approve Bitcoin Futures ETFs was “arbitrary and capricious” and ordered it to re-evaluate. This is one of the main reasons why the SEC finally approved these products.
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<h2 id="h-years-of-sec-hesitation">Years of SEC Hesitation</h2>
In the approval document, the SEC approves the analysis provided to it by many issuers it had refused over the past few years.
Apparently, all it took was for the SEC to perform its own “correlation analysis” to come to the same conclusion that the prices of bitcoin futures contracts are closely linked to spot prices.
This is the same argument that was at the heart of Grayscale’s argument in court and against which the SEC fought, wasting taxpayer dollars in the process.
It’s hard not to condemn the SEC for arriving at the same conclusion after having for years prevented investors from accessing a better investment vehicle for exposure to bitcoin compared to other more expensive and riskier solutions.
<h2 id="h-what-are-the-consequences-for-the-sec">What are the consequences for the SEC?</h2>
SEC Commissioner Hester Peirce has long advocated for the approval of a Bitcoin spot ETF and was one of three commissioners to vote in favor of their approval this week.
She wrote an incredible letter addressing what she believes is the main reason the SEC has refused Bitcoin spot ETFs: bias.
Commissioner Peirce then lists some of the damages caused by the SEC in preventing a bitcoin spot ETF from coming to market, including
<ul>
 <li>Degrading the SEC’s reputation and credibility in the long term</li>
 <li>Wasting millions of taxpayer dollars</li>
 <li>Alienating a generation of investors due to its unreasonable approach</li>
</ul>
SEC Chairman Gary Gensler’s message suggests that the SEC was forced to approve these requests by the courts rather than making the decision on its own.
In his statement on the ETF approval, Gary Gensler appeared displeased and took the opportunity to spread misinformation that bitcoin is primarily used for illicit activities.
Despite the blood and tears shed in this battle, the Bitcoin ETFs have finally launched on the market.
<h2 id="h-bitcoin-the-turning-point-of-january-2024">Bitcoin: The Turning Point of January 2024</h2>
This marks a turning point in Bitcoin adoption.
For the first time ever, millions of investors will have access to bitcoin on traditional brokerage accounts and major institutions such as financial advisors and pension funds will now be able to invest in this asset.
This is a reminder that a Bitcoin ETF is not real bitcoin.
Investors make compromises when they opt for the convenience of a Bitcoin ETF.
First, they are exposed to counterparty risk by trusting a third party to secure bitcoin on their behalf.
When you buy spot bitcoin, you pay once and never have to pay fees again, that’s not the case with ETFs.
Lastly, spot bitcoin trades 24/7/365 and has tax benefits, such as less prohibitive tax loss harvesting rules than ETFs.
That being said, spot Bitcoin ETFs will likely bring millions of dollars to Bitcoin through the marketing campaigns of some of the biggest and most trusted financial institutions in the world. These ETF issuers will compete fiercely to attract capital because, in the world of ETFs, liquidity is king.
Typically, once an ETF in an asset class gains a significant market share and scales, they dominate. From there, they have the power to set their fees as they see fit.
Once an ETF has established itself, it is very difficult for another to take away its crown.
<h2 id="h-a-unique-moment-in-etf-history">A Unique Moment in ETF History</h2>
Spot Bitcoin ETFs represent a unique moment in the history of ETFs, as never before have eleven ETFs been launched at the same time for a completely new asset class.
The competition will be both entertaining and brutal
We have already seen multiple strategies from these ETF issuers to attract capital through marketing campaigns, by lowering their fees (or even waiving them altogether) and trying to win the favor of the Bitcoin community by other means.
Both VanEck and Bitwise have committed to donating a percentage of their profits to the development of Bitcoin’s core.
<h2 id="h-a-transaction-volume-of-4-5-billion">A Transaction Volume of $4.5 Billion</h2>
On the first day, the bitcoin ETFs recorded a trading volume of over $4.5 billion.
However, the trading volume only paints an incomplete picture, as it doesn’t distinguish between the dollar amount of inflows and outflows
Looking at the inflows, a total of $625 million flowed into these Bitcoin Spot ETFs – a remarkable figure for just one day of trading
The big winners of this first day of trading are Bitwise, Fidelity, and BlackRock.
<h2 id="h-is-the-btc-price-collapsing">Is the BTC Price Collapsing?</h2>
Despite the significant capital influx, many investors were surprised to find that the bitcoin price was actually down for the week.
This can be explained by a number of reasons.
The first one is the significance of the GBTC fund outflows.
We’ve seen outflows of $95 million on the first day of trading. This implies that Grayscale sold the trust’s bitcoins. It’s reasonable to presume that a large portion of these outflows are from investors ditching GBTC’s high fees (1.5% per year) and reinvesting in cheaper ETF products.
But it will take a few days for these investors to reinvest those funds due to the slow settlement times in the traditional financial system.
Most of the inflows observed are likely to be recompositions between products and do not necessarily mean there’s a significant volume of new capital coming in.
We had proof of this by looking at bitcoin proxies like MicroStrategy and bitcoin mining stocks, which saw significant sales with the ETF launch. It’s fair to assume that part of those outflows headed towards these Bitcoin Spot ETFs, which track bitcoin performance more closely.
<h2 id="h-will-the-financial-vultures-manipulate-prices">Will the Financial Vultures Manipulate Prices?</h2>
Another reason for bitcoin’s relatively steady price during the week could be that there may also have been profit-taking by hedge funds and other institutional investors who simply viewed the launch of the bitcoin spot ETFs as a trade.
These investors likely took profits when the price rose to $49,000, contributing to the markdown.
<h2 id="h-expect-a-lot-of-volatility-in-the-coming-weeks">Expect a Lot of Volatility in the Coming Weeks</h2>
In the short term, we expect volatility as the market digests this news and as these ETF issuers look to purchase bitcoin for their funds.
These ETFs come at a time when the spot market depth for bitcoin remains thin. Since the collapse of FTX, the liquidity of the spot bitcoin market has halved.
Today, the 1% market depth of bitcoin is about $230 million. This means that an order worth $230 million would move the bitcoin price by about 1%.
These ETF issuers will be sourcing bitcoins in various ways, including over-the-counter desks, directly from miners, and through crypto exchanges.
Today, exchanges account for about 45% of the market depth for bitcoin. Given that spot liquidity remains low and a new wave of demand is coming from the launch of these ETFs, expect volatility in the coming months.
<h2 id="h-towards-more-bitcoin-liquidity">Towards More Bitcoin Liquidity</h2>
In the long run, these ETFs will likely improve the asset’s liquidity because they widen the investor base and there will likely be an increase in trading volumes, with institutions conducting arbitrage operations when there’s a price gap between the ETF and underlying bitcoin.
That’s why, in the long run, these ETFs will potentially reduce volatility and boost liquidity conditions in the underlying bitcoin spot market.
<h2 id="h-bitcoin-won-t-explode-short-term">Bitcoin Won’t Explode Short-Term</h2>
Other reasons explain why the bitcoin price might not immediately skyrocket following these ETFs: it takes time for various brokers to implement new products and for institutional investors, such as financial advisors and pension fund managers, to learn about bitcoin and invest in this asset on behalf of their clients.
We have already seen some examples of this when Vanguard, the world’s second-largest asset manager, refused to offer spot bitcoin ETFs on its platform
This decision kicked off a movement on X (twitter) by bitcoin investors transferring their assets off the platform to companies that support bitcoin. Vanguard started getting a reputation for the wrong reasons.
Vanguard eventually made a public statement, likely in response to the noise created by the Bitcoin community
“While we continuously evaluate our brokerage offerings and assess new products on the market, spot Bitcoin ETFs will not be available for purchase on the Vanguard platform. Our view is that these products do not align with our offering focused on asset classes such as stocks, bonds, and cash, which Vanguard considers the building blocks of a well-balanced, long-term investment portfolio”.
<h2 id="h-vanguard-fund-draws-a-line-on-bitcoin">Vanguard Fund Draws a Line on Bitcoin</h2>
Vanguard has the right to decide which assets it offers on its platform, but its rationale for limiting access to Bitcoin products goes against the data.
Bitcoin has been the best-performing asset class for seven out of the last ten years and was the third-best asset class in terms of risk-adjusted returns last year.
Because of bitcoin’s non-correlated nature, adding BTC to a well-diversified portfolio has reduced overall risk while increasing returns.
Ironically, Vanguard’s decision has highlighted one of bitcoin’s value propositions.
Investors generally don’t like being told what they can or can’t do with their hard-earned savings. Vanguard’s decision to restrict access to Bitcoin ETFs has served as an advertisement for Bitcoin

ETF: everything is aligned for a huge bull run on bitcoin (BTC)

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