Has Bitcoin finally caught the attention of mainstream traditional financial institutions? And if so, what effect will this have on the Bitcoin price? In recent days, BlackRock, the world’s largest asset manager, filed for a spot Bitcoin exchange-traded fund (ETF).
An ETF is an investment that lets people buy and sell shares that represent the value of Bitcoin without actually owning the Bitcoin themselves. In this way, investors don’t have to navigate the complexities of the crypto world, but can still profit if the price of Bitcoin goes up.
BlackRock has proposed a Bitcoin ETF that owns actual Bitcoin, and they will keep their hoard on Coinbase, the largest crypto exchange in the US. BlackRock is hoping that by creating a Bitcoin ETF and following the mainstream rules, they can show the SEC that it can be safe for regular people to invest in. This could be a big deal because it might open up more opportunities for people to invest in Bitcoin that wouldn’t consider the digital asset otherwise.
Bitcoin price change depends on approval
If the ETF is approved by the US Securities and Exchange Commission (SEC), it will be the first of its kind in the US, and it will signal that traditional institutions are ready to accept cryptocurrency.
This has prompted Blackrock’s rivals to jam in their applications for similar products.
Approval might be a long shot
The SEC has not yet approved any applications for Bitcoin Spot ETFs in the past (and they are busy bringing charges against many cryptocurrency pioneers like Binance and Coinbase). So in theory, things are not looking positive.
However, many people in crypto circles believe that the sheer influence of BlackRock might be enough to sway the SEC into accepting the application.
Will an approval affect Bitcoin price?
Dominic Gluchowski is the CMO of CoinJar, an Australian cryptocurrency exchange. He told The Chainsaw that if the Bitcoin spot ETF does make it through approval, it could be good news for the Bitcoin price.
“If BlackRock gets its Bitcoin spot ETF approved by the SEC, it could potentially lead to a substantial increase in the Bitcoin price. Much like the Gold ETF’s impact on the gold market, a Bitcoin spot ETF would allow institutional investors easy access to invest in Bitcoin without the complexities of direct ownership
“Drawing from history, when the first US Gold ETF was launched, it amassed over $1 billion in assets within three days. Within 15 months, it had $5 billion and, in three years, $10 billion. This led to a remarkable surge in gold prices from $332 to an all-time high of $2,075 in August 2020, an average annual growth rate of 27.6%. Applying the same dynamic to Bitcoin, the increased demand driven by the ETF could accelerate the growth rate of Bitcoin’s price, attracting more investors and infusing additional capital into the market.”
Crypto exchanges: Will there be an exodus?
If such traditional financial institutions start acquiring Bitcoin in huge amounts, will we see crypto moving off the exchanges and out of wallets and into the coffers of traditional institutions?
Gluchowski says that the involvement of traditional financial institutions in acquiring Bitcoin, like BlackRock’s agreement with Coinbase for third-party custody, won’t necessarily lead to a large-scale exodus of crypto from exchanges and wallets.
“These institutions create a new avenue for investment without affecting the operations and utility of existing crypto exchanges and wallets. The presence of Bitcoin on exchanges has its advantages, especially for individuals who prefer to avoid navigating the complexities of self-custody.”
In July 2018, BlackRock’s CEO Larry Fink dismissed cryptocurrencies, citing zero client interest, and saying they were an “index of money laundering”. Gluchowski says that fast forward to June 2023, and Fink’s stance has had “a dramatic shift in perspective.”
Why would people invest in an ETF?
BlackRock are known for managing a stupendous amount of money on behalf of their clients, the amount currently sits around US$9.1 trillion. Their expertise lies in growing their customers’ money across stocks, bonds, real estate, and now perhaps cryptocurrencies.
Anything BlackRock does is a big deal. They have huge clout in global financial markets and they shape investment trends. So creating a way to invest in Bitcoin via an ETF without having to actually buy “digital gold” could be a game changer.
Tommy Honan, Swyftx head of product strategy told The Chainsaw, “The main benefit of ETFs is that they make it easier for big corporations to get exposure to Bitcoin. Currently there are many restrictions that prevent institutions from entering the market. A bank in the US can’t just go onto an exchange and buy bitcoin. It’s solving a problem for institutional clients…”
Price could go either way depending on approval
John Hawkins from the Canberra School of Politics, Economics and Society, University of Canberra says that the Bitcoin price appears to already be incorporating some impact from the prospect of the ETF. “A further increase may follow if it is approved (but a decrease if it is not approved).”
Hawkins told The Chainsaw that there are likely to be some investors who would not hold Bitcoin themselves but will use an ETF to gamble on it, as the ETF will be regulated and not require using exchanges like FTX. “Others may sell their own Bitcoin and buy the ETF instead (leading to an increase in concentration of Bitcoin ownership). But the net impact of the ETF being approved should be an increase in demand for Bitcoin and increase in the price.”
Hawkins says that it would be easy to conclude that if there is a safer way of getting exposure to Bitcoin (like an ETF) but not other crypto, that should lead to a fall in the price of the others. “But in practice other crypto prices usually seem to follow the Bitcoin price like sheep.”
Individual investors and Bitcoin price
The question remains: Why wouldn’t people just simply buy Bitcoin, hold it themselves, and wait for it to appreciate (or depreciate) in value?
Gluchowski says that a Bitcoin ETF provides greater accessibility. “It allows any stock investor or institution to invest in Bitcoin efficiently without needing to navigate cryptocurrency exchanges or worry about self-custody. This could attract more mainstream participants, increase liquidity, and stabilise the Bitcoin market.”
While many cryptocurrency investors think that SEC approval of the ETF will signal a new bull run, especially with Bitcoin, that might not necessarily be the case.
Many crypto enthusiasts like decentralised cryptocurrencies such as Bitcoin because they were created as an alternative to traditional finance. And to have a mammoth traditional asset manager like BlackRock wade into the Bitcoin sphere is seen as a betrayal against the original Bitcoin ideology.
Honan told The Chainsaw that Bitcoin’s price has already pumped on news of BlackRock’s ETF application. “But a lot of crypto natives aren’t really expecting the SEC to approve it. So if the BlackRock ETF does get the green light, it’ll be a shock that could trigger a further significant BTC price rise. If the SEC approves BlackRock’s ETF application it could, in theory, open the gates to other ETFs and make it much easier for corporates to invest in crypto. You could see a wall of new institutional money come into crypto.”
Meanwhile, it is all eyes on the SEC to see if they will accept the application from the big guns. It might be quite the shoot-out.