Cryptoverse: As good as gold? Spot bitcoin ETFs aim to whip up US demand
In the ever-evolving world of cryptocurrencies, spot bitcoin ETFs emerge as a game-changer, potentially rivaling the stability and allure of traditional gold investments. With a focus on the US market, these ETFs aim to ignite a surge in demand, bringing bitcoin into the mainstream and reshaping the financial landscape.
Bitcoin, the world’s biggest cryptocurrency, is making its way into the mainstream financial world with the introduction of an exchange-traded fund (ETF) that tracks its price. Investors are optimistic that U.S. regulators will approve a spot bitcoin ETF, leading to a surge in demand. However, there are varying estimates on how much cash such a fund could attract, ranging from $3 billion on its first day to $55 billion over five years.
Some market players draw parallels between the potential impact of a bitcoin ETF and the approval of spot ETFs for gold. They anticipate a wave of buying similar to the launch of the first gold ETF in 2006 or the bitcoin futures ETF in 2021. Major investment firms like BlackRock and Fidelity, as well as crypto-focused companies like Grayscale, have filed applications for spot bitcoin ETFs. The U.S. Securities and Exchange Commission (SEC) is currently reviewing eight to ten filings, although no specific decision timelines have been disclosed.
However, not all investors are convinced of the value of these new investment vehicles. Traditional investors who have been skeptical of cryptocurrencies remain unconvinced and have no intention of allocating any funds to them. They argue that cryptocurrencies lack underlying intrinsic value.
Despite the skepticism, the prospect of a bitcoin ETF has boosted the cryptocurrency’s price, reaching its highest level since May 2022. Estimating the demand for an ETF is challenging due to the varying metrics used by investors and analysts. Bitcoin markets are also characterized by opacity, with price movements largely driven by investor sentiment.
One estimation by U.S. crypto firm NYDIG puts the potential demand for a spot bitcoin ETF at around $30 billion. This calculation compares the sizes of the gold and bitcoin ETF markets and adjusts for relative volatility. However, industry experts acknowledge the difficulty of precisely determining the level of demand for a brand-new asset class entering the ETF market.
Existing bitcoin ETFs, tied to the price of futures contracts, are seen as less desirable due to imprecise tracking of price movements and potential returns erosion from rolling over futures contracts. Steven McClurg, investment chief at Valkyrie Funds, suggests that the current market capitalization of the Grayscale Bitcoin Trust ($3.2 billion) could be a starting point for gauging demand for a spot bitcoin product.
Advocates believe that financial advisers, pension funds, and other money managers could contribute significantly to the demand for a spot bitcoin ETF. However, the actual level of demand may not be sufficient to sustain offerings from all the asset managers seeking a piece of the action. Industry experts predict that only the ETFs with the best marketing strategies will succeed, with half of them likely to disappear within two years.
In conclusion, the introduction of a spot bitcoin ETF has generated considerable excitement and optimism among investors. While estimates on potential demand vary widely, the approval of a bitcoin ETF could have a transformative effect on the cryptocurrency market, similar to what happened with gold ETFs in the past. However, the long-term success of these funds will depend on their ability to attract investors and navigate the evolving regulatory landscape.
