Cryptocurrency-market investors are growing more confident that the U.S. Securities and Exchange Commission will soon give the green light for an exchange-traded fund that invests directly in bitcoin (BTC-USD). This narrative has been playing out in bitcoin itself, as the price of the highest-profile token surged nearly 35% just from a month ago.
Still, some may be wondering what all the fuss is about. Proponents of a spot bitcoin (BTC-USD) ETF have contended that the approval of such a product would open up bitcoin investing to a wider range of investors and therefore become a more widely accepted asset class.
Coinbase Global (COIN), the largest crypto exchange in the U.S., said in a recent report that the product, if approved, could open crypto markets to players in traditional finance, including registered investment advisors (RIAs), retirement funds and other institutions that have historically been unable to access the asset class.
Over the long run, a spot bitcoin (BTC-USD) ETF could add billions of dollars to the overall crypto market cap, which stood at $1.38T on Thursday, the Monday report said. “While this will take time, we expect ETFs to lay the foundation for a more regulated environment, greater inclusion and a material growth in demand.”
But wait, there’s more. “The opportunity is potentially much greater than just enabling new capital to access the crypto market,” wrote David Duong, head of institutional research at Coinbase. “ETFs will ease the restrictions for large money managers and institutions to buy and hold bitcoin, which will improve liquidity and price discovery for all market participants.”
In addition, the regulatory approval of a bitcoin (BTC-USD) ETF “may also open the door to new products, such as lending, futures and options. If that materializes, it can multiply the existing crypto offerings for accredited investors and widely expand adoption.”
J.P. Morgan analyst Nikolaos Panigirtzoglou, meantime, argued that an approval of a spot BTC ETF would not lead to a flood of new money. These ETFs, he noted in a recent note, are already listed in Europe and Canada and have gained “little interest from investors since their inception.”
BlackRock (BLK) is among the largest Wall Street firms awaiting approval for a spot BTC ETF, which would allow investors to gain exposure to bitcoin (BTC-USD) without having to directly hold the asset. The company filed for the iShares Bitcoin Trust in June, a move that fueled a rally across crypto prices as traditional finance continues to push into the crypto space. Other asset managers racing to be first to market the product in the U.S. include WisdomTree, Valkyrie, Ark Invest and Invesco (IVZ).
When BlackRock (BLK) filed for the product in mid-June, the price of bitcoin (BTC-USD) soared to a just over $30K from roughly $26K in the span of a few days. The token is now changing hands at sub-$36K. The sharp upswing underscores investors’ increased optimism about the potential regulatory OK of a spot BTC ETF.
“Typically, the SEC extends its decision window to the fullest extent allowed by its regulatory framework, which in this case would be the final deadline of January 10, 2024 for the ARK-21Shares Bitcoin ETF application,” Duong noted.