The muted response of Bitcoin to the SEC’s approval of spot exchange-traded funds (ETFs) based on the leading cryptocurrency was anticipated. However, in the long run, this development is expected to attract substantial institutional investments and significantly impact the coin’s valuation, experts consulted by ForkLog have stated.
The Significance of Bitcoin ETFs and Their Impact on the Industry
The introduction of spot Bitcoin ETFs in the American stock market bolsters the reputation of cryptocurrencies as a legitimate asset class and a tool for diversification, notes Lennix Lai, Chief Commercial Officer at OKX.
“This will simplify access to the industry for investment funds managing traditional financial assets and other large institutional capital,” he added.
According to Yulia Privalova, head of the FinTech & Crypto practice at the law firm DRC, the influx of institutional investments will increase trading volumes, enhance the liquidity of the crypto market, and potentially even reduce Bitcoin’s volatility in the long term.
“Instead of directly buying and storing bitcoins, which involves security and several technical issues, investors can simply purchase ETF shares, significantly easing the process,” she pointed out.
Alongside this, ETFs may lead to stricter regulation of cryptocurrencies as they become part of broader financial markets, the lawyer believes.
Anton Toroptsev, Regional Director of CommEX in Russia and the CIS, noted that by the end of December 2022, the American exchange-traded fund market was valued at $6.5 trillion, with ETFs accounting for about 13% of all securities on it.
“This indicates significant potential global investments in digital assets. Moreover, a spot fund implies physical ownership of bitcoins. This means institutional capital will directly enter the crypto market,” Toroptsev explained.
However, expecting funds to start purchasing bitcoins worth tens of billions of dollars in the first weeks after the Bitcoin ETF launch is unrealistic, the expert adds:
“Institutional capital is quite conservative, constrained by strict risk management frameworks. The process will be more gradual and cautious, as the actions of the funds will be closely monitored by the American regulator.”
Why Bitcoin’s Price Reacted Weakly to Approval of Applications
The current Bitcoin price largely already factors in the effect of the Bitcoin ETF launch in the short term, believes Andrey Veliky, co-founder of Allbridge.io. Bitcoin rose on expectations of the launch from November—from $38,000 to the current level of $47,000—so the approval merely consolidated recent quotes rather than driving the price upward.
“Moreover, market players were building positions in anticipation of the decision and, classically, began selling at the moment of the decision, creating additional selling pressure and preventing the price from rising convincingly,” the expert noted.
Veliky also does not expect an immediate start of active purchases by institutions.
In turn, Privalova pointed to several negative macroeconomic factors:
“During periods of geopolitical tensions, economic fluctuations, regulatory uncertainty, and other external factors, investors may be more cautious in their reactions to news.”
Trader Vladimir Cohen recalled that the crypto market is always driven by expectations—on the narrative of spot ETF approval, Bitcoin rose by 75% over three months. Meanwhile, futures prices consistently outpaced the spot. Upon approval, massive volumes of long positions were closed, leading to a price drop.
According to him, due to a lack of real liquidity, the main sponsors of Bitcoin’s growth were altcoins and USDT. The BTC dominance index rose to 55%, and Tether printed 11 billion tokens over three months—since the beginning of the year, its issuance increased by 45%—from 66 to 94 billion.
“Upon the news release, profits were taken in Bitcoin and flowed into Ethereum, as the ETH/BTC cross was heavily oversold and gained a new narrative with the approval of an Ethereum ETF,” Cohen explained.
Toroptsev advised retail investors to exercise maximum restraint and not succumb to emotional impulses during periods of increased volatility.
The Prospect of Bitcoin and Altcoin Price Growth
Bitcoin ETFs are generally a positive signal for the market and the valuation of the leading cryptocurrency, noted Andrey Veliky. Considering the upcoming halving, he expects further growth of digital gold.
“However, one should not expect a miracle in the form of a rapid green candle to $100,000, as the market is already quite mature. I am willing to concede that such growth might have been possible in previous cycles, but now expecting such price fluctuations is somewhat naive,” the expert emphasized.
According to Vladimir Cohen, the market is currently in anticipation of the Bitcoin ETF trading launch.
“If there is real demand, growth will continue; if volumes are minimal, BTC may correct to the support level of $38,000-40,000. But in the long run, especially in the fall with the arrival of additional liquidity, I think demand for cryptocurrencies will emerge. And then we will see a real bull market,” the expert stated.
He also added that in the next two months, Ethereum will outpace Bitcoin in growth rates, as it lagged significantly throughout 2023, providing an additional boost to altcoins.
Previously, Robert Kiyosaki predicted Bitcoin’s rise to $150,000 following ETF approval.