• Opinions are mixed on what the crypto market will look like if the SEC approves an ETF for spot bitcoin.
  • Some analysts claim that predictions of an influx of huge investment are exaggerated.

This week marks the 15th anniversary of the genesis blocks being mined on Bitcoin’s blockchain. industry leaders have been pleading to the Securities and Exchange Commission for more than 10 years to approve an U.S. bitcoin exchange-traded funds (ETF), a tool that is predicted to unleash a flood of institutional investment.

The SEC has so far rejected all applications, but this may soon change. Analysts predict that one of more than a dozen proposals currently under consideration will be approved by Friday.

Learn more about Bitcoin ETFs.

Opinions are divided on what the crypto market will look like if it is approved.

Gabor Gurbacs is the director of VanEck’s digital assets strategy. He said that although a spot ETF would create “trillions of value” in the long run, people ” tend to overestimate the initial impact U.S. bitcoin ETFs,” with initial flows equaling only “a few hundreds of millions of (mostly recycled money).

Some analysts even predict a “supply shock” after exchange balances fell to a a href=”https://www.coindesk.com/markets/2023/10/26/bitcoin-primed-for-supplyshock as-exchangebalances drop to 5-year low/a> five year low in October. Analysts have predicted a “supply-shock” since October , when exchange balances reached a 5-year low. The lack of bitcoins on exchanges could indicate that holders are keeping it in their wallets and less likely to sell.

The analysis of flows into the SPDR gold shares ETF (GLD), which was the first spot-gold ETF to debut in the U.S. in 2004, can be informative. GLD accumulated $1.9 billion, adjusted for inflation, in its first four-week period. By the end of the year, , the crypto exchange Coinbase, the total had risen to $4.8 billion. The ETF has $57.37 in total assets.

Invesco launched QQQ in March 1999 – a year prior to the collapse of the dotcom bubble. In the first 30 day period, the fund received inflows totaling $847 million (or $1.65 billion in current dollars).

Read more: Bitcoin Fees will Play a Critical Role in Popularity Race

In the first 30 days following its October 2021 introduction, the ProShares Bitcoin Strategy ETF, based on Bitcoin futures, accumulated around $1.5 billion inflation-adjusted in terms of the total assets. At that time, sentiment was uber-bullish across all crypto asset classes. The fund’s total assets were $1.65 billion as of Thursday.

BITO is exposed to costs of rollover. has closely tracked the spot price of bitcoin ever since its inception. The fund is a good option for those who want to get exposure to bitcoin but without having to own or store it.

The global economy is another factor to consider, as it has high rates of risk-free interest and worsening finances for households. This macroeconomic climate is not conducive to a strong mainstream adoption of spot ETFs.

What will be the reaction of the market?

Bitcoin has risen 61% since the beginning of October, mostly on the expectation that the SEC would approve at least one spot ETF application. This has led several analysts to predict a pullback in the price once the ETFs are launched. Investors who had benefited from a run-up in price will sell their shares to lock in profits when the news is confirmed.

Take the launch of CME bitcoin Futures in December 2017, Coinbase listing on Nasdaq mid-April 2020, and the debuts of futures ETFs such as BITO. During those events, bitcoin was on a rally only to crash a few weeks later.

Bitcoin, for example, surged by 15% three days before SEC approved its first futures ETFs. It reached a record $69,000 a month later, and then fell into a bearish market lasting for over a year.

Read more: Bitcoin traders pare down bullish bias as the deadline for Spot ETFs approaches

CryptoQuant said last week bitcoin could fall to as low as $28,000 because the unrealized profit level in the market has historically been a precursor of a price correction. This is often a 10% drop in crypto markets. Bitcoin gained 160% in the last year, and is up almost 4% so far this month.

CryptoQuant isn’t the only one to predict a decline. QCP Capital, an Singapore-based crypto-trading firm, stated on Telegram that the initial demand for ETFs may be lower than anticipated, setting up a classic “sell-the-news” scenario.

Investors who are worried about a repeat of the events that followed the launch of CME Futures and ProShares BITO should note that they both occurred when the market had risen by hundreds of percent in a year, making it ripe for a corrective move.

The expected launch of the spot ETF comes before the Bitcoin blockchain’s quadrennial halving of mining rewards. This has historically marked the start of price rallies. This follows the price drop to $41,000 this week, which liquidated $400,000,000 in leveraged bets. It also wiped out $2,000,000,000 in open futures interest.

Cash recycling or new flows?

The CME’s launch of futures prompted price declines because it allowed traders to synthetically short the cryptocurrency following a ferocious bull market that was led by 2017’s a href=”https://www.coindesk.com/consensus-magazine/2023/06/01/coindesk-turns-10-the-ico-era-what-went-right/”>unsustainable ICO mania/a>. CME launched futures, which led to a price drop because traders were able to short cryptocurrency after a ferocious bull run that was led by unsustainable ICO mania in 2017.

A spot bitcoin ETF offers institutional investors, such as pension and insurance funds that are typically conservative, a way to gain exposure to bitcoin natively. This is in contrast to ETF derivatives or bitcoin proxy shares from Coinbase (COIN), MicroStrategy MSTR or MicroStrategy MSTR.

There are 35 gold ETFs currently operating in the U.S. with assets under management totaling $118.70 Billion. Recent report from financial services firm NYDIG made comparisons between the gold ETFs and a possible bitcoin ETF.

The report stated that “Given Bitcoin’s volatility is roughly 3.6x higher than gold, investors will need about 3.6x less Bitcoin to achieve the same level of exposure to risk.” This would translate into an additional demand for Bitcoin ETFs of almost $30 billion.

UPDATE (5 Jan. 14:05 UTC: Bullet points added to the top of story.

Sheldon Reback is the editor.