“The trial of ‘SBF is no match for ETF enthusiasm’ reveals a captivating clash between traditional investment strategies and the growing fervor for exchange-traded funds, shedding light on the intense battle for dominance in today’s dynamic market.”
The collapse of cryptocurrency exchange giant FTX marked the depths of the crypto downturn. Yet the ensuing trial of founder Sam Bankman-Fried, accused of defrauding customers, has not dragged crypto prices down further. Despite negative publicity, the price of bitcoin has doubled in the past year.
This has been attributed to two things. In early 2024, rewards for bitcoin miners are expected to drop by 50 per cent. The result is a tightening of supply that could lift prices. At the same time, the US could be on the cusp of regulatory action that confers new legitimacy on to digital assets.
Next year, bitcoin buyers expect the US Securities and Exchange Commission to give BlackRock and other financial companies permission to launch exchange traded funds that invest directly in bitcoin. This, they believe, could spur more adoption by institutional investors and act as a challenge to nefarious, unregulated crypto platforms.
Both assumptions are wrong, even if the SEC grits its teeth and grants approval. ETFs may be more appealing than setting up wallets and buying tokens directly from unregulated exchanges, but their existence does not eliminate scams and volatility that investors find off-putting. When ProShares launched the first ETF that tracked contracts speculating on the future price of bitcoin in late 2021, bitcoin prices rose. The ETF finished its first day of trading at close to $42. It now trades at $17.50.
The global cryptocurrency market cap has fallen from a $3tn market cap to about $1.3tn. Elon Musk, an outspoken supporter of digital assets, has not opted to expose his electric car company Tesla to further price swings. Tesla invested $1.5bn in bitcoin in early 2021 to “maximize returns on our cash”. At the last count, its digital assets were just $184mn.
Liquidity is in short supply. Remaining platforms are under pressure from regulators. Trading volumes at Coinbase, the largest US digital asset platform, fell 55 per cent in the first six months of the year. Without a supply of new money, the latest price rally is unsustainable.
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