The spot Bitcoin Exchange-Traded Funds (ETFs) have been one of the critical drivers of the crypto rally of 2024. Once the US Securities and Exchange Commission (SEC) accorded the spot ETF approval in January this year, positive sentiments soared in the crypto market. Inflows in these spots Bitcoin ETFs surged to billions, continuing to provide a much-needed boost to the crypto market.
Bitcoin’s price has also gone over $70,000 on multiple occasions in recent months and could rise to even higher levels. All this happened after the spot ETF approval, indicating how spot ETFs are a significant factor in determining Bitcoin’s price.
How will these spot Bitcoin ETFs impact the crypto market in the long run? Let’s examine this common query in depth in this blog!
The spot Bitcoin ETFs: a backdrop
The likelihood of a crypto spot ETF in the US started back in mid-2023. At the time, the world’s largest asset management firm, BlackRock, had applied to issue a crypto spot ETF, joining other applicants in the race. Discussions and speculation had peaked in the crypto community, with analysts, experts, traders, investors, and other stakeholders expressing optimism about the development.
Meanwhile, these asset management firms applying for spot Bitcoin ETFs faced several regulatory hurdles, which became a bottleneck for their approval. Finally, a legal win for crypto asset manager Grayscale against the regulators provided the first big break for a probable crypto spot ETF.
The weeks leading up to the US SEC’s spot ETF approval saw massive price jumps in the crypto market. Bitcoin’s price led the rally, breaking free from a stagnant range and displaying heavily bullish indicators just before the ETFs were launched.
Once the spot Bitcoin ETFs went live, the crypto market has not looked back since. Coupled with the Bitcoin halving event in April 2024, the ETFs have consistently helped the global crypto market cap trade above $2.5 trillion. Moreover, prominent asset managers like Fidelity, Franklin Templeton, VanEck, BlackRock, and others have issued ETFs, sealing their distinction in the crypto space.
The impact of the spot Bitcoin ETFs
A spot ETF is an investment fund that tracks the live prices of the assets it invests in. With the spot Bitcoin ETFs, crypto investors gain exposure to Bitcoin without investing in it directly. These ETFs trade on exchanges and directly invest in BTC, holding the assets in custodians-managed vaults. Since the spot ETFs currently hold BTC worth billions, here’s how they can impact the crypto market:
Enhanced market access:
Since a major securities regulator like the US SEC has approved the spot ETFs, new retail investors will have better trust and confidence in the products. Hence, this regulated approach to investing in Bitcoin could also pave the way for much higher retail adoption for Bitcoin.
This could mark a disruptive shift to crypto for retail investors, who usually invest in traditional assets like stocks, bonds, real estate, and commodities. Eventually, this will improve crypto legitimacy, leading to the crypto market becoming a mainstream and evolved investment destination.
Better institutional adoption:
With the spot Bitcoin ETFs, the entire crypto sector will find significant validation, acceptance, and trust from prime global financial institutions. Eventually, it will result in better adoption, innovation, and expansion of the industry. At the same time, the crypto market could benefit immensely from the high institutional capital inflows.
Institutional investors have already raised stakes in the crypto market after the ETFs were approved. In Japan, an asset management firm made Bitcoin its reserve asset.
Market liquidity:
ETFs play a very important role in determining market liquidity in the global equity and bond markets. With the emergence of spot Bitcoin ETFs, the crypto market could witness better price discovery, smooth trading, and better stability of token prices.
Thus, all participants will benefit if liquidity rises in the crypto market because of the higher inflows from the Bitcoin ETFs.
Potential price gains:
Bitcoin’s price is one of the most important indicators of the entire crypto market. Price jumps in BTC lead to spillover effects among multiple tokens, leading to a broader rally. All the important factors mentioned above could lead to one impact: price gains in Bitcoin. The combined factors of retail and institutional demand for Bitcoin and better market liquidity bode well for a price rally in the crypto market.
Regulatory aspects:
As the crypto sector still faces regulatory issues worldwide, the spot Bitcoin ETFs could be evidence of its potential and legitimacy. Regulators in several countries are deliberating on crypto regulation, and the ETFs could serve as a prime example of the benefits of transparent and friendly regulations.
The way ahead
BlackRock’s IBIT ETF and Grayscale’s spot Bitcoin ETF currently hold over $40 billion in assets, ranking them in the top two positions in terms of assets under management. Over time, the spot Bitcoin ETFs are expected to become more mainstream, holding significantly more BTC than their current estimates. They will serve as a bridge for new investors to join the crypto market while playing a crucial role in shaping it.
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