Bitcoin ETF Approval Could Spark Industry Transformation
The expected approval of the first U.S. exchange-traded funds (ETFs) to hold bitcoin, known as spot bitcoin ETFs, by the Securities and Exchange Commission (SEC) could mark a significant moment for the cryptocurrency industry. This approval would allow investors to easily purchase bitcoin in their brokerage accounts, similar to buying stocks. Currently, there are bitcoin futures funds available on the market, but the introduction of spot bitcoin ETFs would provide a new level of accessibility for investors.
BlackRock and Fidelity Join Race to Launch Spot Bitcoin Funds
A dozen or so asset managers, including major players like BlackRock and Fidelity Investments, are vying to be the first to launch spot bitcoin funds. The excitement surrounding the potential approval of these funds has already driven the price of bitcoin above $45,000, its highest level in almost two years. Last year, the price of bitcoin doubled, and this upward momentum was accelerated when BlackRock, known for its successful track record of ETF approvals, expressed interest in launching a bitcoin ETF. The current price of bitcoin is hovering around $44,000.
Bitcoin Price Rally Raises Concerns of an Imminent Correction
Despite the optimism surrounding the potential approval of spot bitcoin ETFs, there are skeptics who believe that bitcoin’s rally may be nearing its end. These skeptics point to the SEC’s previous rejections of bitcoin ETFs dating back to 2017, as the agency has expressed concerns about the vulnerability of these funds to fraud and market manipulation. Furthermore, some strategists predict that even if the ETFs are approved, the news may trigger a “sell the news” event for bitcoin, given its significant price increase. Those who bought bitcoin at lower prices may decide to cash in their profits, potentially leading to a correction in the price. One analyst, Julio Moreno, predicts that bitcoin could fall to $32,000 if traders take advantage of the ETF launch to take profits.
A Crowded Market and Fee Wars Await Approval of Bitcoin ETFs
If the spot bitcoin ETFs are approved, a fee war is expected to erupt among the asset managers vying to launch these funds. This could result in some asset managers losing money in the short term. In an effort to compete on cost, some asset managers, like Invesco, have stated that they will waive their management fees for a certain amount of assets under management. Fidelity has already listed a low management fee in its filing, while the crypto asset manager Valkyrie plans to charge a slightly higher fee. Additionally, Grayscale Bitcoin Trust, which already has a significant amount of assets under management, plans to convert to a spot bitcoin ETF upon approval and reduce its management fee immediately.
Operational Challenges May Delay Immediate Launch of Bitcoin ETFs
While the approval of spot bitcoin ETFs is eagerly anticipated, there may be operational challenges that could delay their immediate launch. Asset managers must complete various operational tasks, such as opening accounts with custodians, setting up data flows, and other crucial steps before the funds can be launched. Coinbase Global is listed as the bitcoin custodian on a majority of the applications. The SEC has been working with asset managers and key players in the industry to help them navigate these challenges. It has requested updates to the applications to clarify the funds’ mechanisms for share creation and redemption, as well as their arrangements with ETF market makers for efficient trading and liquidity. It is expected that not all asset managers will be ready to launch their funds immediately, even if they are approved.
Analyst comment
1. Positive news: Bitcoin ETF Approval Could Spark Industry Transformation
As an analyst, I predict that the approval of spot bitcoin ETFs by the SEC will lead to increased accessibility for investors and potentially drive further growth in the cryptocurrency industry.
2. Positive news: BlackRock and Fidelity Join Race to Launch Spot Bitcoin Funds
With major asset managers like BlackRock and Fidelity vying to launch spot bitcoin funds, I expect this competition to further boost the price of bitcoin and generate excitement in the market.
3. Negative news: Bitcoin Price Rally Raises Concerns of an Imminent Correction
Despite the potential approval of bitcoin ETFs, skeptics warn of a possible correction in the price of bitcoin due to profit-taking by traders. I anticipate that bitcoin’s price may fall as traders cash in their profits.
4. Neutral news: A Crowded Market and Fee Wars Await Approval of Bitcoin ETFs
If bitcoin ETFs are approved, asset managers are likely to engage in a fee war to attract investors. Some managers may initially lose money, while others offer low fees or convert existing funds into ETFs to compete.
5. Neutral news: Operational Challenges May Delay Immediate Launch of Bitcoin ETFs
Although investors eagerly await the approval of bitcoin ETFs, operational challenges could delay their immediate launch. Asset managers must complete various tasks, such as opening custodian accounts and setting up data flows, before launching the funds.
