Market analysis

Approved! How a spot BTC ETF could transform the market

8 min read

After months of deliberation, the Securities and Exchange Commission (SEC) has finally approved the first spot bitcoin ETF in the US. Today, Thursday 11 January, the watchdog approved the spot BTC ETF applications from the following:

  • Blackrock

  • ARK 

  • WisdomTree 

  • Invesco 

  • Bitwise 

  • VanEck 

  • Franklin- Templeton

  • Fidelity 

  • Valkyrie 

  • Grayscale 

  • Hashdex 

We’ve seen bitcoin surge by 7.8% over the past week on the news to $46,450, with this exuberance spreading to the rest of the crypto market. Ether is trading at $2,609. 9.4% higher than the previous day, while Polkadot (DOT), Avalanche (AVAX), and Arbitrum (ARB) are leading the performance of the altcoin market with rises of 14.5%, 12.5% and 22% respectively.

Let’s look at why this long-awaited ETF approval is driving a price rally in crypto assets and assess its potential impact on the market and the wider economy.

Watershed moment for crypto

The battle to launch a spot bitcoin ETF in the US has been a long one. The first-ever application for such an investment vehicle dates back to 2013, filed by Tyler and Cameron Winklevoss (the co-founders of Gemini). Others followed, but it has taken more than a decade and an application from the world’s largest asset manager, BlackRock, for the securities watchdog to finally grant its approval.

So why such a long wait? The problem with a spot bitcoin ETF is that it requires the issuer to buy bitcoin directly – a cryptocurrency that falls outside the realm of US financial regulators. This led to concerns over potential fraud and market manipulation and the subsequent risk to investors.

To be clear, several bitcoin ETFs have been available to US investors since 2021. But they were all futures ETFs – meaning they invest in bitcoin derivatives rather than buying the underlying asset.

Unlike spot bitcoin trading, the futures market is regulated by the CME Group, which makes it more acceptable in the eyes of the regulators. However, futures ETFs also incur higher costs and may not track the price as closely. As such, it is a less efficient way to gain exposure to bitcoin than spot investing. 

Learn more about spot vs futures bitcoin ETFs

Of course, the lack of a spot ETF didn’t stop investors from buying bitcoin in the crypto market. However, the ETF wrapper allows institutional investors with regulatory constraints, as well as retail investors less familiar with crypto, to easily gain exposure to bitcoin. This marks a watershed moment in the history of cryptocurrency and could pave the way for billions inof new investment.

"Bitcoin ETF approval has made it clear that traditional financial institutions have a significant role to play in determining how the crypto markets evolve,” said Sergey Nazarov, co-founder of Chainlink. “The approval of the spot Bitcoin ETF will lead to an influx of traditional large top-tier financial firms like BlackRock and Fidelity, which will likely actively participate in the crypto markets."”

Details of the new bitcoin spot ETF

The new bitcoin spot ETFs are going live on the New York Stock Exchange today upon US market open under the tickers:

  • Blackrock's iShares Bitcoin Trust (IBIT)

  • ARK 21Shares Bitcoin ETF (ARKB)

  • WisdomTree Bitcoin Fund (BTCW)

  • Invesco Galaxy Bitcoin ETF (BTCO)

  • Bitwise Bitcoin ETF (BITB)

  • VanEck Bitcoin Trust (HODL)

  • Franklin Bitcoin ETF (EZBC)

  • Fidelity Wise Origin Bitcoin Trust (FBTC)

  • Valkyrie Bitcoin Fund (BRRR)

  • Grayscale Bitcoin Trust (GBTC)

  • Hashdex Bitcoin ETF (DEFI)

Below are the full details of the new products.

2024_BTC ETF blog-02.png

With an average total expense ratio (TER) of 0.41%, the newly approved products are competitively priced compared to existing bitcoin futures ETFs, whose TERs range from 0.65% for the Global X Blockchain and Bitcoin Strategy ETF (BITS) to 1.59% for the AdvisorShares Managed Bitcoin Strategy ETF (CRYP). ProShares Bitcoin Strategy ETF (BITO), the largest US bitcoin futures ETF with $1.39 billion in assets under management, charges a 0.95% annual fee.

The impact of the spot ETF on bitcoin’s price 

Some market commentators see the approval of the spot BTC ETF in the US as the catalyst that will drive bitcoin toward the $100,000 mark and beyond. With the next Bitcoin halving expected around May 2024, the ETF approval could contribute to a perfect storm of tailwinds for bitcoin. 

READ: Demystifying the Bitcoin halving: What you need to know

However, it’s worth noting that the crypto market has already seen a remarkable recovery since the start of 2023, with bitcoin rising 166% from $16,540 on 1 January 2023 to $46,450 by January 11th, 2024. Standard Chartered analysts this week said the ETFs could draw $50 billion to $100 billion this year alone. Other analysts have said inflows will be closer to $55 billion over five years.

As such, some of the impact of the spot ETF approval may already be priced into the market. In addition, some analysts are warning the launch of the BTC spot ETF could be a “buy the rumor, sell the fact” scenario. Institutional investors may take profits after the post-approval price spike. This could cause heightened volatility in the short term.

2024_BTC ETF blog-03.png

Equally, news never happens in a vacuum. Bitcoin’s performance in 2024 and beyond will also be affected by wider economic conditions, the regulatory stance towards crypto across the globe (especially in the US), and potential unforeseen Black Swan events. Despite today’s big win for the sector, crypto assets remain a volatile investment and investors must continue to view them as such. 

Long-term impact of bitcoin spot ETF approval

Whether the news is priced into the market or not, the approval of a bitcoin spot ETF after more than a decade of waiting will undoubtedly have a profound effect on the cryptocurrency market and the wider economy. 

The availability of a spot ETF is likely to bring institutional inflows into bitcoin and make the asset class more attractive for traditional investors who may not have previously allocated to cryptocurrencies. This, in turn, would lead to improved liquidity in the market and even pave the way for bitcoin to become more integrated into the global financial system.

A bitcoin spot ETF could also become the blueprint for ETFs tracking the spot price of other cryptocurrencies, such as ether, Solana, and others. In fact, the wheels are already in motion as BlackRock has filed an application for an Ethereum spot ETF. The growing availability of regulated crypto investment vehicles could drive the widespread adoption of digital assets in investors’ portfolios.

On top of this, an ETF approval may signal the securities watchdog’s readiness to provide more regulatory clarity around crypto-related financial products, including definitive guidelines on which tokens should be regulated as securities. This clarity would help drive development and innovation in the crypto market. 

At the same time, however, now that investors can buy bitcoin through spot ETFs, regulators will be paying much closer attention to the impact this could have on financial stability. Legislative frameworks will likely focus on reducing the risk of market manipulation and stress-testing the impact of large swings in bitcoin’s price on capital markets. 

Key takeaway

The approval of a US spot bitcoin ETF is a momentous occasion for the digital asset industry. It opens the doors to institutional capital and could promote the mainstream adoption of cryptocurrencies over time, which could be positive for digital asset prices.

However, it will also lead to increased regulatory scrutiny, which has historically led to short-term price volatility. In addition, while many see the approval as a catalyst to a runaway rally in bitcoin, some of the positive impact may be already priced in. As such, we continue to advocate caution when investing in bitcoin or any other digital asset.

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