Eric Ma, CEO of TIDEX, comments on the potential and pitfalls of a world with Bitcoin ETFs.
Ripples have been sent through the Bitcoin investment space with the announcement of a spot Bitcoin ETF application from BlackRock the world’s largest asset manager.
There is no guarantee that the US financial regulator will approve a Bitcoin ETF, but the fact that industry giants have filed applications has fueled speculation that an approval is likely.
The move from $10 trillion asset manager BlackRock stoked plenty of excitement and concerns alike from Bitcoin proponents, with many championing the potential for massive inflows from legacy institutional investors, while others pushed back, citing the risks that such a product structure could pose to the market. The introduction of such a product could bolster Bitcoin’s profile among traditional investors, but it’s vital to understand the potential implications.
Although helpful for price and boosting institutional demand and access, there is the risk of the second- and third-order effects of this ETF. Wide adoption of BlackRock’s ETF, complete with Bitcoin IOUs, will offer more paper bitcoin variants to emerge. This could lead to a small cohort of institutions having a significant impact on overall price and market liquidity because of the large size of their financial flows.
Commenting, Eric Ma, CEO of TIDEX, says: “Although the potential of an approved spot Bitcoin ETF has put excitement back into the crypto market, there are no guarantees it will get approved and even if it did, it may not have the impact many are hoping for.”
What happens next?
Based on the standard procedural timelines, the best guess is that an ETF approval is on the horizon for sometime in early 2024. It’s a timely move as it will coincide in the same year as Bitcoin’s next halving. Ideally, this is the perfect time for institutional investors to get exposure to bitcoin while also playing into a gold-like-mania narrative, to drive increased market interest right before Bitcoin’s planned supply issuance schedule gets cut in half.
According to crypto trading firm NYDIG’s recent research report, Bitcoin ETFs could bring $30 billion in new demand.
How Will ETFs Affect Bitcoin Demand?
“The brand recognition of BlackRock and the iShares franchise, familiarity with purchase and sale methods through securities brokers, and simplicity of position reporting, risk measurement, and tax reporting, a spot ETF could bring some noted benefits compared to existing alternatives,” NYDIG writes in its report.
Already, NYDIG has modeled that there are $28.8 billion in bitcoin assets under management with $27.6 billion in spot-like products.
Comparing investor types across the board, NYDIG researchers identified that demand for a spot bitcoin ETF might come from investment advisors that are currently investing in BTC futures ETF.
Banks and brokerage firms are likely to see this as a bigger opportunity, and institutions could overcome their hurdle of holding spot BTC through the launch of the product. This move could bring Bitcoin to more client portfolios.
The incremental demand from clients could directly influence the market capitalisation and price of Bitcoin with a multiplier of 10x, NYDIG said.
Concluding, Eric says: “Although there are no guarantees that Bitcoin price will shoot towards the stratosphere, an approved spot Bitcoin ETF would certainly be positive for BTC demand and gains will be had. It would certainly be a shame to not have any skin in the game when this happens.”
