Bitcoin: What impact will spot ETFs have on BTC’s price?
- Bitcoin’s price was expected to hit somewhere between $50,000 and $73,000.
- The market became prey to fake news around ETF approval.
The crypto market was buzzing with excitement over the likely approval of around half-a-dozen Bitcoin [BTC] spot ETF applications, in the hopes that it would spur the next wave of investments in the space and free it from the grip of the extended bear market.
How much are 1,10,100 BTCs worth today?
A new dawn of hope
Notably, Ark Invest and 21Shares were the early movers when it came to filing for a spot Bitcoin ETF. The pair filed the application earlier in April, followed in June by a rush of applications from other TradFi giants such as BlackRock, the world’s largest digital asset manager.
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.
A Bitcoin ETF allows investors to gain exposure to the price movements of Bitcoin without actually 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.
Clearly, asset managers would have to purchase a lot of Bitcoins from the market to link the ETF with the real-time value of the crypto. This factor has contributed to the feverish interest in spot ETFs.
Having said that, can we evaluate the quantitative impact of these financial instruments on the market value of Bitcoin?
Bitcoin’s price to increase by…
Popular on-chain analytics firm CryptoQuant predicted capital inflows of $155 billion into the Bitcoin market upon clearance of the ETFs.
The company arrived at the said figure by assuming a 1% allocation of the asset managers’ total assets under management (AUM) – roughly $15.6 trillion – in spot ETFs.
Usually, when new capital enters the market and investors bag Bitcoins at a higher price, the realized cap witnesses an increase. Realized cap values an asset based on the price of each of its coins when they last moved, instead of its market value.
On the other hand, the more conventional market cap could potentially increase at a rate greater than realized cap. This was because market cap would revalue all coins in circulation.
This was evidenced by the graph below. During the bull markets of 2017 and 2021, the market cap grew between three to five times higher than the realized cap.
This relationship, termed as the MarketCap-RealizedCap Elasticity, has remained in the range of 3-6 during bull markets. Based on this, it was predicted that Bitcoin’s market cap would rise between $450 to $900 billion if $150 billion was invested in the market via spot ETFs.
Moreover, if the market cap increases in the manner as highlighted above, it could send Bitcoin’s price to somewhere between $50,000 and $73,000. As of press time, BTC was valued at $28,350, per CoinMarketCap. This would mean a growth in the range of 80%-160%.
It was interesting to compare this scenario with the world’s largest Bitcoin fund, Grayscale Bitcoin Trust (GBTC), during the last bull cycle. When BTC surged, GBTC saw its realized cap increase by just $5.5 billion, a fraction of the anticipated $155 billion capital infusion through spot ETFs.
Fake news dents ETF approval chances?
In recent months, the crypto market has primarily reacted to developments surrounding spot ETFs, with other catalysts taking a back seat. However, when the market is on tenterhooks, it becomes exposed to the flow of unconfirmed information.
Drama unfolded on Monday when a popular crypto media platform posted fake news about approval of BlackRock ETFs on X (formerly Twitter). The news went viral and sent BTC soaring to nearly $30k.
Is your portfolio green? Check out the BTC Profit Calculator
However, when the outlet retracted and admitted lapses on its behalf, the king coin quickly fell back to $28,000.
Popular crypto market analyst Adam Kochran slammed the media platform, accusing it of jeopardizing ETF approval chances because of the blunder.
I look forward to them providing documentation on where that report came from.
Because they massively just hurt the chances of real ETF approval, and/or blatantly scammed people. https://t.co/Nyd2LJfzIo
— Adam Cochran (adamscochran.eth) (@adamscochran) October 16, 2023