Listening to the news, the U.S. Securities and Exchange Commission (SEC)’s approval of a Bitcoin spot exchange traded fund (ETF) has widely been lauded as ‘the legitimisation’ of Bitcoin and other cryptos. One news outlet even referred to it as “The adults finally stepping into the room…” OR… is it simply a matter of them finally catching up? Bitcoin was always legitimate; and 15 years later (talk about institutional inertia?), traditional finance wants in on the action.
Here’s a simple guide to what the approval means for the industry…
Crypto is finally ‘mainstream’ within the investment landscape
Exchange traded funds (ETF) are a financial product in America that allows people to buy Bitcoin through investing in a managed fund - similar to a Kiwisaver product. Approval of the ETF allows hundreds of millions of investors around the world who can buy American ETF products to access Bitcoin as easily as they can purchase any other managed fund and gives big investors (like pension funds) access to the Bitcoin market for the very first time.
The bottom line? In a few minutes, millions have made the jump from ‘Should I invest in crypto?’ to ‘Where can I invest with the lowest fees?’
Increased media and marketing attention for crypto
At the time of writing this post, there were no fewer than 11 approved applications for ETFs - with different ‘Tickers’ (the 4 digit symbol that represents a publicly traded stock or index), management fees and sponsors (or the companies backing the ETF).
With issuing companies including very big names like Blackrock and Grayscale, and sponsors including JP Morgan - it’s a move that has usurped both tech, business and even mainstream headlines. It is expected that these issuers will aggressively drive funds into these offerings - including an uptick in the marketing and media attention around Bitcoin.
The bottom line? Seeing adverts for Bitcoin EFTs could become as commonplace as seeing a call to invest in your future through a retirement fund.
A possible ‘bull run’ or pricing spike on the horizon
In terms of implications, optimists have started to draw comparisons to how the first gold ETF impacted gold’s price. The impact was not immediate, albeit definite and sustained. Once demand is established, this could lead to sustained buying pressure as institutions and retirement funds begin to incorporate crypto into their portfolios.
This year’s ‘Bitcoin halving’ has been widely tipped to be the cherry on top of this pricing optimism’. ‘Bitcoin halving’ takes place approximately every four years and is forecast to happen in April 2024. Unlike traditional currencies, which are controlled by central banks and governments, the supply of Bitcoin is programmatically limited and there will only ever be 21 million Bitcoins. When a halving event happens, the miners who operate the Bitcoin network receive less Bitcoin as reward for their efforts. This means less new supply coming into the market, which affects the classical supply and demand price curve. Halving events are now widely covered by media outlets, further contributing to the hype and excitement within the crypto community.
These ‘mathematical projections’ range very broadly - but unequivocally predict that the currency increases significantly in value. Those looking to make a ‘quick buck’, however, might face disappointment as a true market surge often typically only happens a few months after the event itself.
The bottom line? While only time will tell, a Bitcoin ETF and the upcoming ‘Bitcoin halving’ might provide fuel for a long-awaited ‘bull run’.
Increasing levels of consumer trust
Increasing institutional investment in crypto helps boost trust and confidence in the industry as people watch brands they know and trust use a specific asset. The ETF structure allows investors to gain exposure to Bitcoin without directly owning the underlying asset, offering a more regulated and familiar investment vehicle to many consumers.
The bottom line? Trust in crypto is at an all time high.
Supporting additional liquidity
Increased institutional participation will inject substantial liquidity into the market and might help foster greater price discovery via increased trading on a regulated platform. This boost in trading activity may also reduce the gap between buying and selling prices, known as the spread, making it easier and more cost-effective for investors to buy or sell Bitcoin ETF shares. In essence, the ETF approval enhances both market efficiency and accessibility.
The bottom line? The SEC's approval is set to play a pivotal role in enhancing liquidity, paving the way for a more mature and robust cryptocurrency market.
Whatever your reaction, astute investors the world over are realising that there has never been a better time to hone their knowledge around crypto and potentially look to add some to a well balanced portfolio. As always, basics like investing only what you can afford to lose are key but with crypto, investors should also brush up on things like how to
Disclaimer: Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.