‘100s of billions into BTC’ – What spot Bitcoin ETFs mean for the market
- Bitcoin was anticipated to reach nearly $100,000 by the end of 2024.
- Around 88% of the financial advisors said they were waiting for a spot ETF approval before investing in Bitcoin.
After months of anticipation and excitement, the crypto market is gearing up for what could be the most pivotal day of the decade, if not the most pivotal day ever.
A new chapter in the crypto industry
The industry has pinned its hopes on the potential approval of dozen odd Bitcoin [BTC] spot exchange-traded funds (ETFs) in the U.S. market.
Many analysts believe it to be a turning point not just for the king coin, but mainstreaming of the asset class as a whole.
Indeed, if approved by the U.S. Securities and Exchange Commission (SEC), these financial instruments would offer an easier way to gain exposure to crypto assets.
While spot ETFs do exist in countries like Canada and Germany, the U.S., as home to some of the world’s biggest asset managers and institutional liquidity, is a different ball game altogether.
Ark Invest and 21Shares were the early movers when it came to filing for a spot Bitcoin ETF. The pair had filed the application earlier in April.
This was followed in June by a rush of applications from other TradFi giants such as BlackRock, the world’s largest digital asset manager.
Most issuers and analysts were convinced that the approval is a foregone conclusion, as AMBCrypto extensively reported in recent days.
Although not being specific, a tacit agreement came from none other than the SEC Chair Gary Gensler when he detailed the dos and don’ts of investing in cryptocurrencies.
A thread 🧵
Some things to keep in mind if you're considering investing in crypto assets:
— Gary Gensler (@GaryGensler) January 8, 2024
The 10th of January is when the watershed moment is expected to take place.
Red carpet for traditional investors
A Bitcoin ETF allows investors to gain exposure to the price movements of Bitcoin without owning the asset directly. Unlike a futures ETF, which is already in place, a spot ETF involves holding Bitcoin as its underlying asset.
So, when investors purchase shares of a spot ETF, they are essentially buying a representation of actual Bitcoin.
This might be especially appealing to traditional investors, who would avoid the technical headaches of keeping a cryptocurrency wallet and private keys. Put simply, betting on cryptos would become as easy as any other asset.
The inklings of this began to surface gradually. According to a survey conducted by Bitwise and VettaFi, around 88% of U.S.-based financial advisors said that they were waiting for a spot ETF approval before investing in Bitcoin.
While the anticipation was peaking, a logical question that comes to mind is – how much of an impact does a spot ETF have on the medium to long-term value of Bitcoin? How much new capital would it attract?
Bitcoin to soar by…
British multinational bank Standard Chartered predicted Bitcoin would reach $100,000 by the end of the year, and close to $200,000 by the end of 2025.
Well, did your eyes pop out? That’s not surprising considering that the maximum Bitcoin has risen to was $69,000.
These predictions were based on the assumption that about $50-$100 billion worth of capital would move into spot Bitcoin ETFs.
Standard Chartered even forecasted a faster rate of market value growth when compared with Gold. The firm noted,
“We expect Bitcoin to enjoy price gains of a similar magnitude as a result of U.S. spot ETF approval, but we see these gains materializing over a shorter (one- to two-year) period, given our view that the BTC ETF market will develop more quickly.”
The launch of a spot ETF in 2004 indeed revolutionized gold trading. The value of the yellow metal rose 27% in a year after the launch, 172% in five years and nearly 5x in a decade, AMBCrypto noticed using a Trading View chart.
The fact that Bitcoin was predicted to grow even faster spoke volumes about the significance of spot ETFs to the industry.
Christopher Alexander, Chief Analytics Officer at Pioneer Development Group, also expected considerable value infusion into Bitcoin. He said,
“While not every investor is going to buy BTC, with trillions of dollars being managed, there are tens, to hundreds of billions of dollars that could flow into BTC in the coming years. With 800 plus billion in market cap, if hundreds of billions move into BTC that is a major market moving event.”
A more conservative estimate by Peter Eberle, President and Chief Investment Officer of crypto asset manager Castle Funds, predicted fresh inflows of $27 billion within the next two years. Eberle acknowledged,
“Short term anything can happen. We believe that $400,000 is a realistic price by the end of the decade.”
Relation between realized cap and market cap
AMBCrypto turned to the on-chain counterpart for capital inflows – Realized Capitalization – to better comprehend this. Unlike conventional market cap, realized cap values an asset based on the price of each of its coins when they last moved.
As per an earlier report by blockchain analytics firm CryptoQuant, the market cap grew between three to five times higher than the realized cap during the previous two bull markets of 2017 and 2021.
Going by this, even a $27 billion infusion could help Bitcoin’s market cap reach $81-$108 billion. Similarly, inflows of $50 billion could result in a market cap addition of $150-$200 billion, which is undeniably significant.
How much are 1,10,100 BTCs worth today?
While these numbers make up for good viewing, the major challenge to market cap growth was psychological as pointed out by Christopher Alexander. He added,
“The market cap for BTC by the end of 2024 is going to hinge on how the non-BTC owning public is going to perceive the SEC approval and the big banks mainstreaming crypto.”
Is the Bitcoin ETF news priced in?
The price action of Bitcoin since September has been markedly bullish. The month of December saw BTC form a range, but the recent surge above $46k appeared to be a bullish breakout that could take BTC much higher.
The gains that BTC witnessed now might be just the start. As mentioned earlier, 88% of the advisors from the Bitwise survey admitted that they would be looking to buy Bitcoin once a spot ETF is approved.
Therefore, news of approval could spark short-term volatility as some market participants try to sell the news and wait for a huge retracement.
For investors with a long-term investment horizon, BTC gains could arrive over multiple years instead of just a few months or over a single year.
Fake news factors in
As if to prove that point, the price chart witnessed a spike in volatility. This followed a tweet by the SEC that seemed to announce the approval of a Bitcoin spot ETF.
In the late hours of Tuesday, this tweet prompted Bitcoin prices to surge to $48k before slumping to $46.6k within the same hour.
Back in October 2022, they advocated the use of 2FA to secure accounts related to investment firms, but neglected to follow the same for their Twitter handle.
The market’s short-term reaction showed buyers are ready and eager to pump prices higher. This suggested that the actual approval could see Bitcoin climb to $48k.
Any higher and a move to $52k would be far more feasible since $48k is a key resistance.
Expectations of a bull run for BTC hinged not just on a halving event, but because of the magnitude of demand that could arrive. One of the reasons for such expectations is the Bitwise survey.
Bitcoin is the preferred candidate over Ethereum
The Bitwise survey revealed information that painted a bullish picture of the crypto industry. In particular, Bitcoin is likely to experience the greatest capital inflow among the assets in the crypto space.
It might not be a one-time influx, either.
In general, once due diligence has been performed, staying invested in an asset class is likely to yield returns, even though the short to medium-term market might face turmoil.
The reason why we can focus so intensely on Bitcoin is because it seems the advisors are doing the same, too. One of the key takeaways from the survey was that 71% of them favor Bitcoin over Ethereum.
Moreover, diversification in the crypto sphere is a risky, double-edged sword given the nature of altcoin cycles.
Investors are likely to have much greater faith in the security of the Bitcoin network than any of the other assets out there, for example.
Its reliability has been proven over the past decade, and its resilience despite the 2022-23 turmoil could see investors gravitate toward Bitcoin to cover a majority of their crypto exposure requirements.
The Bitcoin bull party could be here to stay for many years
Long-term BTC investors are more likely to continue to add to their BTC buys. The Bitwise survey backed this claim and advisors who already have a crypto allocation strongly agree.
The survey showed that 98% of them planned to either maintain or increase their clients’ crypto exposure in 2024.
Furthermore, invested parties tend to stay invested.
A large majority of these advisors will be sitting down with their clients as the year begins and telling them earnestly that adding a minimal crypto exposure of 1% or thereabouts is a sound financial decision.
The largest asset management firm in the world, BlackRock, is among the Bitcoin spot ETF applicants. It has a $9.42 trillion AUM as of June 2023.
Assuming they recommend their clients allocate 0.5% of their portfolios to Bitcoin, that would see roughly $50 billion flow into Bitcoin over the year. And we arrived at this figure using just BlackRock.
Bitwise Invest is also one of the Bitcoin ETF issuers and has $748 million in AUM. Therefore, if advisors and fund management firms encourage the public to hold Bitcoin, it could see the prices multiply manifold in the course of a few years.
Suddenly, estimates of $200k per Bitcoin look conservative a couple of years down the line.
Plotting the resistance levels en route $200k
The Fibonacci levels for the bottom and top of the last cycle show that we are bang on target for the next rally. The drop in late 2022, taken a step further southward by the FTX fiasco, still didn’t deviate too much from the $17.8k mark.
This level represented the 78.6% retracement of the past cycle.
At the time of writing, Bitcoin has a strong bullish market structure on the weekly chart. To the south, the $30k area is a former resistance zone that could still be revisited due to the enormous amount of liquidity likely present there.
To the north, the weekly consolidation zone from $46k to $52k stretched back to late 2021. It rebuffed the buyers in March 2022. At press time, BTC advanced into this zone. It is likely to retreat, but how far down is unclear.
Once this resistance zone is flipped to support, the Fibonacci extension levels northward above $69k are expected to act as resistance. The psychological levels at $100k, $150k, and $200k could see a major reaction.
As things stand, $52k and $69k are the levels to watch.
Where can the king coin head next?
AMBCrypto did not glean too much information on where BTC could face resistance due to the sparsity of the estimated liquidation levels upward.
The $48.8k and $52k levels have some liquidation levels but it is the lower half of the chart that draws the eyes.
The estimated liquidation levels just below $35k are roughly in the $120 billion to $150 billion range. Further downward, the $30k level is estimated to have a similar amount. But the true star is the $23.6k level.
Hyblock data suggested that $261 billion worth of liquidations sat at this level. Since prices are attracted to liquidity, there’s an argument to be made that BTC will fall to this level in a black swan event over the coming months.
But as things stand, this eventuality seemed highly unlikely. The $30k mark is both a psychological and technical level of great importance, especially based on the recent rally.
This article was created in collaboration with Akashnath Sumukar.