Answer: That’s Not How ETFs Work!
I’ll delve into that shortly, explaining why Bitcoin didn’t skyrocket as some anticipated. Anyone familiar with the stock market could have predicted it wouldn’t happen overnight, especially not within weeks of approval.
The Bitcoin ETF Arrives
The introduction of a spot Bitcoin ETF (Exchange-Traded Fund) could potentially influence Bitcoin’s price in various ways, contributing to its upward trajectory. Here are some key factors:
Mainstream Investor Participation:
The spot Bitcoin ETF offers a regulated, accessible route for mainstream investors to enter the Bitcoin market through traditional brokerage accounts. This accessibility may attract numerous new investors who were previously hesitant or lacked the technical expertise to invest directly in Bitcoin.
Influx of Capital:
As more investors seek exposure to Bitcoin through the ETF, a surge of capital into the cryptocurrency market is expected. Increased demand for Bitcoin will drive up its price, adhering to the basic economic principle of supply and demand, though not exactly as anticipated.
Legitimacy in the Financial System:
Regulatory approval and launch of a spot Bitcoin ETF validate Bitcoin’s legitimacy within the mainstream financial system. This validation may bolster investor confidence, including among institutional players, leading to heightened interest and investment in Bitcoin.
Active Trading:
The spot Bitcoin ETF offers a convenient avenue for investors to trade Bitcoin, attracting more active traders, including hedge funds and speculators, who may contribute to increased trading volume.
Enhanced Liquidity:
With more participants trading through the ETF, liquidity is likely to increase. Greater liquidity typically stabilizes prices and reduces volatility, making Bitcoin more appealing to a wider range of investors.
Why Bitcoin Didn’t Skyrocket
For those expecting a grand celebration of newfound crypto millionaires and exponential price surges right after the long-awaited ETF approval, reality hit hard. The misconception arises from a misunderstanding of how these fund vehicles operate. Let’s take BlackRock, for instance, the pioneer of the first approved Bitcoin ETF. While their product indeed provides retail investors a regulated, mainstream avenue to access BTC exposure in brokerage accounts, the crucial detail is this: BlackRock didn’t need to accumulate a massive stash of BTC from spot markets to back their fund’s shares. They had already strategically amassed a reserve worth hundreds of millions in cold storage, likely acquired during the last bear market when novices were panic-selling.
What are the Implications?
New ETF inflows primarily involve shifting mega-cap holdings from one custody vault to another. This isn’t so much about retail traders flooding spot markets with legitimate buy-side demand but rather about large funds reallocating internally for greater yield capture.
Now, don’t misunderstand; the integration of legacy financial infrastructure with Bitcoin’s asset ecosystem is monumental. It’s another step toward widespread adoption, bringing mainstream access closer to inevitability. The symbolic significance of everyday investors gaining indirect access through their pension funds cannot be overstated.
However, expecting the ETF approval to trigger an instant frenzy of buying pressure from retail traders? That’s not how this industry operates. We’re more likely to see a gradual buildup until fund reserves are depleted, prompting institutions to revisit the spot market—similar to a pressure cooker reaching its boiling point. In baseball terms, we’re still in the early innings.
Bullish Momentum is Building
Imagine the current market scenario as an archer with his bow and arrow. Traders/investors are the archers, the ETF approval is the bow, and Bitcoin is the arrow. As demand rises and supply remains constant, prices are bound to soar, regardless of the asset or product.
At some point, these ETFs will exhaust their Bitcoin reserves and return to the spot market, propelling Bitcoin to new heights. Hence, now is arguably the best time in Bitcoin’s history to invest, as it could potentially witness a $50K or more surge in a day or two once reserves are depleted. This aligns with why some have been predicting a $1 million per coin since mid-2022—I couldn’t see it then, but now…oh yes. Of course, this hinges on sustained high demand and the inevitable discovery of supply.
If you weren’t aware before, now you are!