Jan 12, 2024

The Surge of Bitcoin ETFs: A New Era for Cryptocurrency Investment

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Introduction: A Watershed Moment

After months of anticipation, the cryptocurrency world witnessed a historic moment. The U.S. Securities and Exchange Commission (SEC) approved 11 spot bitcoin exchange-traded fund (ETF) applications. This decision, hailed as a "watershed" moment, is set to revolutionize the way mainstream investors can access bitcoin. The approval saw industry giants like BlackRock, Fidelity, Grayscale, and Bitwise launch their ETFs, signaling a significant shift in the crypto landscape.

The Anticipation and Predictions: A Billion-Dollar Forecast

Before the SEC's decision, there was a palpable sense of anticipation. Analysts, including those from Standard Chartered Bank, predicted that bitcoin ETFs could attract over $100 billion by year-end. This optimism wasn't unfounded. Historically, the launch of the first U.S.-based gold exchange-traded product led to a significant increase in gold prices, a trajectory that bitcoin was expected to follow.

Schrodinger’s ETF: A Moment of Confusion

Image source: @SECGov X account post before it was deleted.

Few hours later they posted this:

Image source: @SECGov X account

Amidst this fervor, a surprising incident occurred. The SEC's official Twitter account was compromised, falsely announcing the approval of bitcoin ETFs a day early. This led to a rapid surge and subsequent plummet in bitcoin prices. The incident, while quickly rectified, raised questions about the SEC's security measures and the market's sensitivity to such news. Truly a Schrodinger’s ETF, it was approved and not approved at the same time. 

The Market Response: Record-Breaking Volumes

The actual approval day was nothing short of historic. The approval of these ETFs, which started trading immediately, was met with an overwhelming response. 

Image source: @EricBalchunas X Account

Eric Balchunas, an analyst from Bloomberg reported a staggering $2.6 billion trading volume in just the first few hours. BlackRock’s $IBIT passed $1b in volume, with the total group hitting $4.3b or $2.2b if we don’t include GBTC (as it is a conversion and not a launch from $0 AUM). It was encouraging to see the top 4 issuers do over $100m in volume. Bitcoin's price briefly soared, crossing $49,000, its highest since late 2021. This surge was not just a reaction to the approval but also an indicator of the immense potential that these ETFs hold.

Image source: Grayscale Filing with SEC

Grayscale even went ahead to file a covered call ETF, involving actively managed exposure to GBTC & buys/sells call & put options that use GBTC as the reference asset. Wow, that was fast!

Image source: @BitcoinMagazine X account

Interestingly, reports surfaced about Vanguard blocking customer access to these ETFs, citing a mismatch with their investment philosophy. Guess what, Vanguard Group is the largest shareholder of Crypto Exchange Coinbase, one of the largest for Bitcoin mining company Marathon Digital Group and the second largest shareholder of Microstrategy which holds the most BTC on a corporate balance sheet. Heck  Vanguard even allowed users to buy GBTC when it wasn’t even approved as a Spot ETF but only allowed ‘Sell’ orders after its approval. Really, Vanguard??? 

The result: Everyone is moving their account to other brokerage platforms such as Fidelity. 

Image source: @BTC_Archive X Account

Coinbase: The Real Winner

Image Source: @JSONLEE3 X Account

Coinbase emerged as a key player, being the custody partner for 9 out of the 11 of the asset managers launching bitcoin ETFs. Their stock rose almost 400% last year, reflecting the growing enthusiasm for bitcoin ETFs. However, some analysts speculate a potential market share shift from crypto exchanges to ETFs.

A New Chapter for Bitcoin and The Digital Asset Industry

The approval of spot bitcoin ETFs by the SEC marks a new chapter in cryptocurrency investment. These ETFs not only offer a more accessible way for mainstream investors to engage with bitcoin but also signify the growing acceptance of cryptocurrencies as a legitimate asset class. 

What’s next? An ETH Spot ETF? Coinchange hosted an X-space to discuss the BTC Spot ETF implications and why ETH was rallying harder than BTC itself. As the market adapts to this new reality, the potential for further growth and innovation seems boundless. 

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