What if the Bitcoin ETF fails?

Investors' hopes

Investors have been waiting for a Bitcoin spot ETF for nearly a decade, and now it seems to be just around the corner.

Bitcoin prices surged on Monday after rumors spread that BlackRock, the world's largest asset manager, is about to receive approval from the U.S. Securities and Exchange Commission for its Bitcoin ETF application.

Analysts and experts in the field say that a cryptocurrency ETF (exchange-traded fund) could be launched in January or earlier . However, the launch of an ETF is not entirely certain, as the U.S. Securities and Exchange Commission has been reluctant to approve the product in the past.

An ETF would track the price of bitcoin, allowing investors to gain exposure by buying shares without having to deal with digital wallets, exchanges or private keys. Because an ETF would remove technical barriers, some analysts and bitcoin evangelists say such a fund could lead to an influx of money into the bitcoin market.

| Can ETFs live up to the hype?

The answer is: not everyone thinks so. JPMorgan Chase researchers pointed out as early as July that trading products on spot cryptocurrency exchanges in Canada and Europe have not yet attracted much interest from investors.

Bloomberg Intelligence analyst Eric Balchunas said there may be “some gaps between early hype and actual demand,” adding that “ when a bitcoin ETF eventually starts trading on a stock exchange, it may not perform as well as the first futures-based crypto ETF did when it launched two years ago. ”

Futures cryptocurrency ETFs differ from spot market ETFs in that investors buy shares that provide exposure to a bet on the future price of a cryptocurrency, rather than the asset itself. Despite years of rejecting spot market applications, the SEC approved the futures product at the height of the bull run.

“I wouldn’t be surprised if the spot market bitcoin ETF underperforms BITO (ProShares Bitcoin Strategy ETF) in terms of flow, because BITO was launched at the peak of the mania,” the expert said. “I’m preparing something much more modest than BITO, but I imagine in three, five years, it will be very successful.”

BITO began trading in October 2021, when Bitcoin was selling for $64,000 per coin. At the time, there was a huge demand for all cryptocurrencies - the product traded $280 million worth of shares in the first 20 minutes . By the end of the first day, nearly $1 billion in shares had changed hands.

But prices of all digital assets have plummeted since then, and the industry has been plagued by bankruptcies, hacks and scams, which could scare away potential bitcoin ETF investors, especially those who have already suffered losses.

| ETF development still has a long way to go

“The Ethereum futures ETF that launched earlier this month got off to a slow start,” Balciunas added. “A lot has happened and a lot has been taxed. While Bitcoin has made a comeback this year, I think it will be a bit weaker.”

“It’s also worth considering the liquidity constraints on exchanges today compared to 2021,” said Adam Guren, co-founder of cryptocurrency hedge fund Hunting Hill Digital, noting the challenges of “even a $500 million first-day inflow is noteworthy.”

Experts point out that the SEC currently has a long list of Bitcoin ETF applications that need to be approved. Some speculate that they may be approved at the same time, which will lead to a dispersion of interests. But experts agree that the approval of such a product is good for Bitcoin in the long run.

“More and more investors will be interested in spot products than futures products,” said James Seyyfart, an analyst at Bloomberg Intelligence. “On a one-year time horizon, I think the demand for spot ETFs will exceed the demand for futures ETFs.”

Guren added that “approval of a spot bitcoin ETF would represent a significant milestone and would pave the way for a more favorable environment for cryptocurrency investing in the United States.”