Is Bitcoin on a Spot ETF Price Push?
By Tobi Oluyede October 26, 2023
- Bitcoin has reached an 16-month price high, reminiscent of 2022, driven by speculation regarding the potential approval of a spot ETF
- This speculation gained traction with BlackRock's iShares ETF appearing on DTCC's website, among other media reports
- Approval of a spot ETF by the SEC could significantly boost demand for Bitcoin as it would enable cautious investors to access the crypto asset class
- Indications of active dialogue with the SEC and major financial institutions suggest a possible path to approval and renewed interest from retail and institutional investors
Bitcoin has hit an 16-month price high not seen since May 2022 on growing speculation over the likely approval of a spot ETF. The rumor was driven mostly by BlackRock's iShares ETF listing on clearing house DTCC's website, among other chatter that has been in the media, some of which perhaps premature.
Of course, any SEC approval of a spot ETF would most likely fuel demand, as this would allow erstwhile wary investors to gain exposure to the crypto asset class through the stock markets. A new wave of capital could flow in again, and it seems that BTC price is surging in anticipation.
Easy Entry Points
Crypto ETFs can offer an easy entry point into cryptocurrencies without actually holding digital assets. Like traditional ETFs, they track the performance of one or more cryptocurrencies (like bitcoin) through a portfolio linked to the assets (like Ordinals-focused). ETFs have over $9 trillion in assets parked in them as of the end of 2022.
ETFs had 11,119 products with assets of US$9.229T in 2022. Source: ETFGI
The SEC has approved other crypto ETFs that use futures contracts to track cryptocurrency prices. The ProShares Bitcoin Strategy ETF (BITO) was one such ETF, the first and largest in the US which started trading in October 2021. The fund seeks capital appreciation primarily through crypto futures contracts with no assurance of profit.
However, the fund does not invest directly in bitcoin. That's what spot ETFs do, but getting one of those approved has been a struggle for years.
SEC Notoriety Revisited
Over the years, the SEC has been careful in its approach to cryptocurrencies, adopting a wary stance in its agenda. Cryptocurrencies were created to be censorship-resistant and permissionless, allowing anyone motivated to do so to participate. Yet in 2018, the SEC had to step in after thousands of shady projects popped up during the ICO boom.
The ICO crowdfunding model, a crypto version of the IPO, offered a way to raise funds without having a working product. Many simply hired someone to write a whitepaper, and no real product or service was needed to raise funds. Sadly, many of these projects never saw the light of day.
Crypto eventually evolved into decentralized finance, and the SEC began updating its nomenclature. Although smaller DeFi projects were mostly targeted, some projects faced "enforcement action," leading to hefty fines. With bitcoin, it's clear the SEC believes it is decentralized. But it does regulate the issuance of investment products like ETFs and is cautious about the bitcoin spot market overall.
Can ETFs Make Sparks Fly?
Investment giant BlackRock recently made amendments to its pending spot bitcoin ETF application based on feedback from the SEC. Experts say the SEC is in active dialogue with these funds, and approval is possible.
Bitcoin price over the past year. Source: CoinDesk
With recent mentions of big names like BlackRock, JP Morgan, Barclays, and Fidelity, some positive news is soon to be expected - which is why bitcoin price has surpassed $34,497 for the first time since 2022.
The BITO futures ETF saw inflows of around $570 million and around $1 billion in trading volume on its debut day in October 2021. Take into account this massive investment exposure for a potential ETF approval, and the market could be seeing at least half/a billion dollars in inflows on launch day if a spot ETF blooms.
Thanks to spot bitcoin ETFs, crypto might start to see renewed interest from both speculative retail investors and institutional investors alike.