To The Moon

The anticipation for the ETF approval has been building throughout 2023, with Bitcoin's price rising over 160% year-to-date as of December 21. The surge reflects investors' optimism for the approval of the first US spot Bitcoin ETF, which would mark a significant milestone for investors.

Reflecting this trend, concept stocks like Coinbase have seen a surge of 125% since November 2023, while Marathon Digital has experienced an impressive 166% increase in the same period.

Bitcoin spot VS Futures ETF: What's the difference?

A bitcoin spot ETF is a type of exchange-traded fund that aims to provide investors with direct exposure to the current market price of bitcoin.In this context, "spot" refers to the immediate or current price of the underlying asset, which is bitcoin itself. A bitcoin spot ETF typically holds actual bitcoin as its underlying asset and attempts to track the real-time price of bitcoin as closely as possible.

Futures ETFs do not hold actual bitcoin. Instead, they use bitcoin futures contracts to gain exposure to cryptocurrency. A bitcoin futures contract allows investors to speculate and bet on the future price of the asset.

Trend for a price rise

The U.S. Securities and Exchange Commission (SEC) has historically maintained a conservative stance regarding applications for Bitcoin spot ETFs, often citing the high volatility of the Bitcoin market and insufficient investor protection as reasons for rejecting these applications.

In August 2023, a decision by the SEC to deny Grayscale Investments the opportunity to convert its Bitcoin fund (GBTC) into a spot Bitcoin ETF was overturned by a court. Subsequently, on October 13th, the SEC announced that it would not appeal this ruling. This decision marked a turning point in market sentiment and ignited a significant market movement.

The noticeable increase in Bitcoin futures open interest on the Chicago Mercantile Exchange (CME) indicated that from October 15th onwards, the Bitcoin market began to exhibit significant activity.

Amidst these developments, the market's focal point has been the impending decision on the application by Ark and 21shares, due on January 10th. This event has garnered high attention from the market, with investor sentiment running strong.

The decade-long road to spot bitcoin ETF approval

• 2013: Gemini tried to launch a Bitcoin ETF, rejected by the SEC.

• 2017: Multiple firms applied for Bitcoin spot ETFs, all rejected by the SEC. SEC Chairman Jay Clayton classified Bitcoin as a storage/payment mechanism.

• 2021: New SEC Chairman Gary Gensler was open to Bitcoin futures ETFs. In October, SEC approved ProShares Bitcoin Strategy ETF (BITO), the first Bitcoin futures ETF in the U.S. Ark Invest and 21Shares applied for a Bitcoin spot ETF.

• March 2022: Ark Invest's Bitcoin spot ETF application denied by the SEC.

• 2023: Ark Invest's second spot ETF application rejected in February; another application made in April. In June, BlackRock applied for a Bitcoin spot ETF, hinting at regulatory changes.

• 2024: ARK Investment and BlackRock expect SEC responses on their Bitcoin spot ETF applications in January and March, respectively.

Overview of Bitcoin Spot ETF Applications

Why are investors interested in bitcoin ETFs?

• Expected to attract incremental capital

As of October 2023, the total assets managed by the U.S. wealth management market, comprising broker-dealers ($27.1 trillion), banks ($11.9 trillion), and registered investment advisors ($9.3 trillion), amounted to $48.3 trillion. Based on these figures, GalaxyDigital estimates that, over a longer period, the potential scale of capital invested in Bitcoin products could range between $125 billion to $450 billion.

• Regulatory oversight

A bitcoin ETF would be subject to regulatory oversight, providing investors with a level of protection and transparency. This regulatory oversight can help reduce concerns about fraud and market manipulation, which can be more prevalent in unregulated cryptocurrency markets.

• Ease of access

ETFs are traded on traditional stock exchanges, making it easier for mainstream investors to buy, hold and trade the bitcoin-related asset through their existing brokerage accounts. This accessibility is particularly appealing to investors who are not familiar with cryptocurrency exchanges or are hesitant to use them.

• Mainstream acceptance

The introduction of a bitcoin ETF can be seen as a sign of mainstream acceptance and integration of cryptocurrencies into traditional financial systems.

Is Bitcoin at risk of a 'sell the news' event?

If rejected, bearish in the short term, but still bullish in the long term

• Cryptocurrency investment service provider Matrixport mentioned in a report released on Wednesday that any negative decision by the SEC on the Bitcoin derivatives market could trigger a series of liquidation events, leading to a sharp decline of about 20% in Bitcoin prices in the short term. Furthermore, concept stocks related to it may also be negatively impacted in the short term.

• In the long term, Matrixport also predicts that even if the SEC rejects the Bitcoin ETF proposal, the price of Bitcoin is still expected to be higher than the level at the beginning of this year by year-end. This indicates that the long-term prospects for concept stocks related to Bitcoin are still viewed positively.

If approved, is there a risk of positive news being priced in?

• Anticipation effect on market dynamics: There's a consensus among experts that if the U.S. greenlights a Bitcoin spot ETF, it could trigger short-term market sell-offs. This reaction might occur because the market often incorporates such expectations in advance. Investors need to be cautious of this phenomenon where the market rallies on anticipation but sells off upon the actual news ("buy the rumor, sell the news").

• Bitcoin halving as a key event: The upcoming Bitcoin halving in April 2024 is poised to be a critical event. Historically, the six months leading up to a Bitcoin halving have seen notable market movements, with significant volatility typically occurring right before the halving. With the concurrent peak in Bitcoin spot ETF applications, a heightened period of volatility and market activity in the Bitcoin market is expected around this event.

Opportunities ahead