Bitcoin ETFs: Was it all hype or is BTC to $100K still on the cards?
- Bitcoin anticipated to reach nearly $100,000 by the end of 2024
- Around 88% of financial advisors to invest in Bitcoin after spot Bitcoin ETF
After months of anticipation and excitement, the crypto-market welcomed the news that the U.S. Securities and Exchange Commission approved 11 spot Bitcoin [BTC] ETFs. These products began trading on Thursday, the 11th of January.
The first day of trading alone generated nearly $4.6 billion volume in buying and selling. And the first three days of trading brought in almost $10 billion in volume. Analyst Eric Balchunas highlighted just how extraordinary this number was in a post on X.
However, despite the enthusiastic participation, the price of Bitcoin has slumped by nearly 16% since that day’s high at $49k.
A new chapter in the crypto-industry
The industry had pinned its hopes on the approval of a dozen odd Bitcoin spot exchange-traded funds (ETFs) in the U.S. market. These financial instruments offer an easier way to gain exposure to crypto-assets.
While spot ETFs did 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 in U.S. The pair had applied 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.
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 was especially appealing to traditional investors, who can now avoid the technical headaches of keeping a cryptocurrency wallet and private keys. Put simply, betting on cryptos has become as easy as any other asset.
According to a survey conducted by Bitwise and VettaFi earlier this month, around 88% of U.S.-based financial advisors said that they were waiting for a spot ETF before investing in Bitcoin.
Now that the approvals are here, the next big question 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 is $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 found using a Trading View chart.
The fact that Bitcoin is predicted to grow even faster speaks volumes about the significance of spot ETFs to the industry.
Christopher Alexander, Chief Analytics Officer at Pioneer Development Group, also expects 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.
While these numbers make up for good viewing, the major challenge to market cap growth is 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 in the days leading up to the ETF approval were quickly retraced though. At the time of writing, BTC was trading beneath the $42k support zone. It was near the range lows at $40.5k.
The OBV has trended south in the past ten days to show strong selling volume. It appears that the event was a “sell the news” type.
However, long-term investors need not worry much. Short-term volatility and consolidation in the $30k-$40k is a possibility that would give them more time to accumulate BTC.
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 inflows 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 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.
BlackRock’s ETF has already tapped a milestone with $1 billion assets under management. BlackRock, being the largest asset management firm in the world, 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 to $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 south 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 had 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 had 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 north of $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 upwards. The $48.8k and $52k levels have some liquidation levels but it is the lower half of the chart that draws attention.
The estimated liquidation levels just below $35k are roughly in the $120 billion to $150 billion range. Further south, the $30k level is estimated to have a similar amount. But the true star is the $23.6k level.
Hyblock’s 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 seems highly unlikely. The $30k mark is both a psychological and technical level of great importance, especially based on the most recent rally.
The fall to $40.6k a week after the spot ETF approval shows that the news had been priced in, in the short-term. Long-term, it is hard to quantify exactly where BTC could find its next top at.
The Bitwise survey’s findings showed that investors will likely allocate a small portion of their portfolio in the coming months and years. This could see steady, unrelenting buying pressure on BTC as business entities and individual investors alike seek to beat inflation by diversifying their holdings.
This article was written in collaboration with Aniket Verma.