The U.S. Securities and Exchange Commission (SEC) gave its approval to 11 spot bitcoin exchange-traded funds (ETFs) on January 10 after months of speculations. These newly approved ETFs diverge from previously dubbed "Bitcoin ETFs," which were tied only to future contracts or shares of Bitcoin-entwined corporations. The current batch of sanctioned funds directly hold Bitcoins, aligning more accurately with the spot price of Bitcoin over time and offering a relatively simplified means of investment in the cryptocurrency compared to independent crypto wallets.
This endorsement by the SEC can be seen as a significant validation of Bitcoin's prospective mainstream status. Cryptocurrency optimists are considering this regulatory green light as a potential booster for BTC's price, possibly catapulting it to a six-figure high.
Since October's end, with the growing buzz around the SEC's decision, BTC has climbed over 60% and is currently trading at an almost two-year peak. Despite much anticipation, the market response post-approval remained muted, with the large-cap token witnessing a marginal rise on the following day – a pattern typically observed when investors 'buy the rumor and sell the news.'
In the aftermath of the first wave of ETFs commencing trading on January 11, BTC's price plunged, falling nearly 8% in just five days, estimating a value of roughly $42,700.
Predicting the volatility of BTC's price remains challenging. Its historical best stands at approximately $69,000 during the apex of the crypto surge in November 2021, yet it plummeted to a mere $16,000 by 2022 end. Factors such as increasing interest rates deterring speculative investments, failure of various high-profile tokens and exchanges, and rising apprehensions over stricter crypto regulations largely contributed to this plunge.
However, 2023 witnessed BTC's price soaring over 150% to over $42,000, spurred on by slower rate hikes and renewed market interest in cryptocurrency. This resurgence was also fueled by the anticipation of the SEC's approval of Bitcoin's maiden spot-price ETFs.
Consequently, the recent setback only wiped out BTC's gains earned at the onset of 2024. The dip suggests quick-profit short-term traders possibly inflating the digital currency's price in anticipation of recent ETF approvals, only to capitalize on the profits following the initial excitement.
Market observation currently highlights a heated contest between bullish and bearish forces. A significant recovery appears elusive for buyers of the currency, hinting at sustained pressure from bearish influences. Moreover, BTC is trading below the 10-day and 50-day moving averages, indicating a downturn and reassertion of control by bearish forces.
Typically, if BTC dips below the $42,000 threshold, accelerated selling could follow, potentially driving its value further down. As for those bullish on the asset, they will need to push BTC above the 10- and 50-day EMA to avert a negative outcome.
Moreover, Bloomberg ETF analyst Eric Balchunas said that the newly launched ETFs witnessed inflows of $1.4 billion. On the contrary, the Grayscale Bitcoin Trust (GBTC) saw an outflow of $579 million. However, the net inflows in two trading sessions across the ETFs were $819 million.
This initial flurry of activity aligns with James Seyffart's earlier forecasts. He projects that Bitcoin ETFs could succeed in drawing in around $10 billion within their inaugural year on the market.
But are there any long-term catalysts?
While BTC's price adjusts in response to the pressure of recent ETF approvals, prospects indicate a significant potential for the cryptocurrency's growth.
The primary outcome of the ETF approvals is to enhance accessibility for large-scale institutional investors to accumulate Bitcoin in an open market setting. Investment powerhouse Fidelity, already having launched the Fidelity Wise Origin Bitcoin Fund (FBTC), has projected a soaring Bitcoin value, with expectations of a $1 billion valuation by 2038.
A similarly bullish stance lives within Standard Chartered, whose strategists postulate that spot ETFs could generate between $50 billion and $100 billion in inflows for Bitcoin within this year alone. They further predict a stunning price peak of $200,000 by the close of 2025.
Ark Investment's Cathie Wood, managing the recently approved Ark 21Shares Bitcoin ETF (ARKB), anticipates that the price of Bitcoin could hit $1.5 million by 2030. But why such astronomical levels? Her projections stem from a belief in BTC's value growing with increased institutional adoption, positioning it not merely as a preferred choice for encryption enthusiasts but also acting as a pivotal tool in robust, institutional-grade risk diversification.
The fixed supply cap on Bitcoin at 21 million coins sharply contrasts the inflating supply of fiat currencies, thus potentially amplifying its appeal as a deflationary asset.
The projected trajectory primarily hinges on the pronounced network effect within BTC, where its value heightens with an increase in blockchain users and transactions – supported by ongoing technological advancements and enhanced accessibility.
While certain aspects of these long-term forecasts may appear overly optimistic, it is logical to conclude that Bitcoin ETF approvals will introduce a modicum of stability to its volatile pricing structure. This stabilization could prompt return investment from larger entities and propel BTC prices closer to their historical peak levels.
Also, past trends hint toward any halving year being a catalyst for a bullish surge, traditionally followed by a bull run in the succeeding year. This pattern, chiefly attributed to expanding public interest, augmented risk activity, and heightened discourse surrounding digital currency futures, places Bitcoin squarely at a vantage point. Potential factors such as reduced Bitcoin supply due to halving and the prospects of fresh investments via ETFs could introduce unprecedented market dynamics.
Moreover, anticipation of interest rate reductions in the U.S. intensifies predictions for bullish BTC pricing in 2024. Furthermore, the looming shadows of sticky inflation may steer a wave of investors toward acquiring Bitcoin as safeguards against the devaluation of their fiat currencies.
Bottom Line
Pre-launch speculation surrounding Bitcoin spot ETFs had heightened anticipation. However, when regulatory approval did not spur an upward reaction, traders may have chosen to capitalize on profits, leading to a substantial market recoil.
Not all of the financial world is swayed by optimistic BTC price targets. For instance, former PIMCO CEO Mohamed El-Erian indicated in a recent post that although the SEC's approval could be a pivotal moment for cryptocurrency, it would unlikely broaden Bitcoin's utilization. The outlook remains more constrained.
The SEC itself voices reservations about BTC's investment potential. In a separate announcement, Chair Gary Gensler dubbed Bitcoin as "primarily a speculative, volatile asset that's also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing."
While the markets can be unpredictable, lower price points might draw in long-term investors who keep a close watch on the Bitcoin halving and institutional influx into Bitcoin spot ETFs over the forthcoming weeks.
Despite the prevailing belief that institutional monetary allocation will take time to transpire, it is argued that the subsequent price dip wasn't exactly favorable to capital inflows. Agreeingly, there was substantial conjecture around the concept of selling the fact, so maybe there would be a twist when or if Bitcoin prices begin to ascend again. But at this juncture, one would need to see it to believe it!
The ETFs have yet to gather steam in terms of trading volume fully. Investment giant BlackRock has reportedly bought a staggering 11,500 BTC from the available supply during the latest dip since the launch of its spot Bitcoin ETF. This amount is significant, considering that only 900 BTCs are issued daily. BlackRock’s purchase effectively represents about 13 days’ worth of Bitcoin production taken on by a single entity, creating speculation of supply concerns.
The presumption pointed toward an immediate and dramatic financial inflow into the Bitcoin ETF may be misguided. There has always been the potential for Bitcoin to experience consistent – even if relatively slow – capital inflows.
The circumstance represents a quintessential pattern of overestimating short-term impacts while concurrently underestimating long-term potentials. The situation underscores a transition phase in market realignment, signaling a need for cautious optimism.
Given the current landscape, investors should proceed with caution venturing into this space.
