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Bitcoin is in a pivotal stage of its evolution as an asset class. After numerous back and forth talks and exchanges, United States regulator Securities and exchanges Commission (SEC) met with BlackRock for a fourth time over their application for a spot price Bitcoin ETF late last week, sparking even more hope that an approval will come soon.

To understand the significance of a Bitcoin spot price ETF, it’s important to know the background. t’s been managed and handled much like a commodity: first only possession of the Bitcoin tokens themselves was an option (obviously often at great expense and requiring unique digital storage facilities) and then, after some years of this, futures ETFs were approved. This opened up a way for investors who didn’t have the cash for buying Bitcoin outright – now they could buy a futures contract.

As FTI Consulting explains: “futures contracts [enable] the ETF allows investors to buy or sell the asset at a future date at a set price. Regardless of the asset’s actual price that day, you must buy or sell the asset at the stipulated price on the specified date. While the contracts will attempt to track the spot price of Bitcoin, the ETF will not necessarily correlate with the actual price.”

This is where a spot ETF would be a radical departure: a regulation-backed product which correlated in real time to Bitcoin’s price, right now, as determined according to its correlation to an existing and established market (such as cash in US dollars, for example).

This is what FTI Consulting calls “the middle ground between crypto and traditional investing” and it is, understandably, kind of a big deal in the journey of Bitcoin as a market in its own right. There are seemingly more signs every day that an SEC approval of at least one spot Bitcoin ETF (BlackRock is a favourite contender for many) within the next month.

…But, assuming this actually happens – as is increasingly looking likely – what does that mean for Bitcoin’s investors?

According to Jeff Lewis, hedge funds product manager at Pantera, what a Bitcoin spot ETF means for investors is an even greater spike in Bitcoin prices leading into the first few months of 2024:

Historically, the price of bitcoin has increased slowly and steadily into the indicator’s peaks. After peaking and rolling over, the price has ramped up quickly and steeply, with those rallies lasting 1.3 years on average from the indicator peak to the peak in price. For this cycle, we haven’t seen any clear indication that the indicator has topped out.”

As Lewis points out, this is not only due to the spot ETF, but also due to the fact that Bitcoin is due for its next halving in April 2024.

A natural follow-up question would then be: ‘when does the indicator peak this cycle and we see a sharp run-up in price?’ What’s interesting is that the peaks in the indicator have occurred no more than two quarters from Bitcoin Halvings – 0.2, 0.5, and 0.3 years before or after halvings.  The next halving is expected to occur at the end of April 2024.”

In the medium to longer term, many argue that at least one Bitcoin Spot ETF from a major financial institution would lend the asset class a more widely respected sense of legitimacy and stability that would boost its long-term prospects further.  

On December 15th, CEO and Chief Investment Officer at U.S. Global Investors Frank Holmes compared the imminent  spot ETF approvals to gold getting its own spot price in his own prediction:

Before GLD and the similarly gold-backed iShares Gold Trust (IAU), investors were limited to physical bullion (which can be costly to move and store) and the futures market (which may not be appropriate for every investor). Making its debut in November 2004, GLD increased overall demand for gold by reducing the frictional costs associated with investing in the metal and making it more accessible to a broader investor base. Since that time, the price of gold has increased nearly 360 percent.”

On December 14th, Coinbase Research came out with its 2024 Crypto Market Outlook report. In it, Coinbase said that they expect the approval of a Bitcoin spot ETF has seen to have far, far more long-term consequences than just a December-January price rally:

We think the secular trend for institutional crypto adoption will accelerate. In fact, anecdotally, the later stages of the 2023 rally have started to attract a broader set of institutional clients into the crypto space, from traditional macro funds to ultra-high net worth individuals. We expect the availability of spot bitcoin ETFs in the US to advance this trend, potentially leading to the creation of more complex derivative products that rely on compliance-friendly spot ETFs as the underlying. Ultimately, this should improve liquidity and price discovery for all market participants.”

The post What will the coming spot Bitcoin ETF mean for markets? Experts weigh in appeared first on Invezz

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