Bitcoin operates on the foundational principles of blockchain technology. Blockchain enables the creation of an immutable and decentralized ledger of transactions, which is maintained on a distributed network with no single point of failure. This technology has revolutionized the way transactions are recorded and has garnered significant attention across various industries. Bitcoins are created through the process known as mining, which involves specialized computers solving increasingly complex mathematical puzzles. The decentralized nature of this process, without the need for a central authority, is one of the key appeals for investors, also its deflationary nature with a limited supply of only 21 million coins, which has challenged traditional financial institutions and central banks. Its emergence has introduced new possibilities for pseudonymous transactions, efficient cross-border capital transfers, and the creation of a digital store of value. Bitcoin economy is still in its early stages, with significant growth potential, but regulatory frameworks for cryptocurrencies are still evolving, and this have contributed to the absence of specific Bitcoin ETF currently available in the market.
Bitcoin ETFs are funds that trade on a stock exchange that attempt to track the performance of Bitcoin. When you buy an ETF, you aren’t buying the Bitcoin directly, but you’re buying shares of a fund, security or index. Legacy investors seeking exposure to Bitcoin can explore options that offer tangential exposure through companies leveraging blockchain technology, which are involved in various applications of blockchain, beyond cryptocurrencies, and can provide indirect exposure to the potential growth of the crypto ecosystem.
The Securities and Exchange Commission’s (SEC) concerns about the unregulated nature of the crypto space and the lack of control, because of its decentralized structure. While spot bitcoin ETFs are not yet available in the United States, they do exist in other countries like Canada. Several bitcoin ETFs are currently trading in Canada, like Purpose Bitcoin ETF, which is the largest among them. Notably, the ProShares Bitcoin Strategy ETF (BITO) is the largest among them, with nearly $1 billion in assets. Additionally, the Grayscale Bitcoin Trust (GBTC), which has been around for almost a decade and has accumulated over $13 billion, has been another popular way to gain exposure to bitcoin. However, GBTC, structured as a trust rather than an ETF, has often traded at a significant premium or discount to the actual value of bitcoin, which has made it an imperfect proxy for bitcoin’s price.
More than 30 spot bitcoin ETF filings have been submitted to the SEC, some have been rejected, and others are still technically active or have seen their applications withdrawn. The SEC has not signaled a change in its stance on approving these ETFs. If the SEC were to gain regulatory oversight of crypto exchanges through its lawsuit against Coinbase, it might remove a significant obstacle to approving a bitcoin ETF. However, determining the extent of the SEC’s regulatory authority could involve a lengthy legal battle. While Fidelity has its own digital assets division and a bitcoin ETF in Canada, it is unlikely to secure the first spot bitcoin ETF approval, considering the filing’s timing.
BlackRock’s partnership with Coinbase for crypto access to its institutional clients is not new, however, the timing of the filing raises questions. Some speculate that BlackRock may have inside information suggesting a change in the regulatory landscape and rumors that BlackRock has incorporated more robust oversight measures into its proposal, it is unclear how this alone would ensure approval, but we all know that Blackrock is the largest asset management company in the world and the one who has the money, creates the rules. The SEC has expressed concerns about the potential harm to retail investors who may invest in assets they do not fully understand, which has influenced its previous rejections of blockchain and bitcoin-related ETFs, but Blackrock filling for Bitcoin spot ETF will be approved and will open the window for other Bitcoin ETF’s.
Grayscale has expressed its intention to convert GBTC into an ETF once possible, but the SEC has rejected this conversion, and Grayscale has sued in response. There is a chance that Grayscale could win the legal battle, allowing the conversion to proceed and it could become one of the leading player in the bitcoin ETF race. It is very likely that BlackRock manages to secure approval for its bitcoin ETF, which will pave the way for other bitcoin ETFs to follow and consequently, GBTC will be converted from a trust to an ETF shortly after the launch of the BlackRock product and Fidelity to join in, with its aspirations to become a major player in the crypto ETF market.
In order to see the next bull cycle, we need to end the recession and institutional investors to put their money in to Bitcoin and other crypto ETF’s, once we have regulatory clarity and SEC approval for spot Bitcoin ETF next year. Also, this scenario will increase market liquidity, overall trading volume and higher crypto market value, which will bring more stability to Bitcoin’s price and to reduce volatility. At the moment crypto market value is over $1,228 trillion, with Bitcoin dominance of 48% and market cap of $590 billions. The ATH of the crypto market was over $3 trillions, back in October 2021 and Bitcoin hit $69,700 with almost $1.27 trillion market cap. My prediction is that we will be witnessing bull-run in Q2 in 2024, which will be around the Bitcoin halving in May. Another bull-run in 2025 because of the new rule for central banks, brought by Bank for International Settlements (BIS) which allows exposures to cryptocurrencies, including: tokenized traditional assets, stablecoins and cryptocurrencies. It very likely to have super bull cycle when all of this conditions are met.
DISCLAIMER: Content of this website references an option and is for information purpose only. It is not intended to be investment advice. Seek a licensed professional for investment advice.