Upcoming Bitcoin ETF Verdict: Data & Commentary From CCData

Quotes

"The market is primed and torn between two scenarios - on the one hand, there's palpable anticipation for the approval of a spot Bitcoin Exchange-Traded Fund (ETF), a move that could catalyze a significant influx of institutional capital and drive prices to unprecedented highs. This optimism is bolstered by the submission of several high-profile ETF applications to the U.S. Securities and Exchange Commission (SEC), including those from industry giants like BlackRock and Fidelity.

Regulatory compliance is a vital component in attracting mainstream institutional investments, such as pension funds, which have traditionally been wary of the crypto sector's volatility and regulatory uncertainties. The anticipated regulatory oversight associated with ETFs is expected to bring with it increased institutional inflows alongside a new era of market stability. Irrespective of whether the ETF is approved or faces further delays, the prevailing market sentiment has shifted from questioning if an ETF will materialize to speculating when and under what conditions it will occur." - Charles Hayter, CEO & Co-Founder, CCData

Pricing & Data

You can access live Bitcoin price charts here. 

CCData can provide underlying price data for a wide range of digital assets. We can also support with the following data sets: exchange volume, open interest, funding post ETF verdict, volumes by market, AUM data, market cap data, BTC dominance and more. 

What Is An ETF?

Exchange-traded funds (ETFs), similar to individual stocks, are financial instruments that are traded on stock exchanges. They offer investors the opportunity to diversify their portfolios through a single investment vehicle. For Bitcoin, ETFs are crucial due to their ease of access and adherence to regulatory requirements, all of which are vital to help foster mainstream adoption. 

The first ETF was issued in 1993 - with over $2.1 Trillion invested as of 2015. 

ETF shares involve a number of pieces. The key is the "Authorised Participant" who creates and redeems shares each day. Authorised Participants assemble the gold or Bitcoin when the creation of shares is taking place - they then turn this over to the fund for new ETF shares with the reverse process true for redemptions. 

The Benefits of Approving a Spot Bitcoin ETF

The approval of a spot Bitcoin ETF in the United States would mark a significant milestone for the cryptocurrency industry, symbolizing a degree of acceptance and validation by the Securities and Exchange Commission (SEC).

A Bitcoin ETF simplifies investing in Bitcoin, eliminating complexities like direct purchase, secure storage, and wallet management. As regulated entities, ETFs offer enhanced security and credibility, distinct from the less regulated crypto market. This opens doors for wider investment from entities like pension funds, thereby promoting mainstream institutional engagement. The regulatory oversight associated with ETFs is also anticipated to contribute to market stability by aiding in more transparent price discovery and reducing market manipulation. 

The Current ETF Landscape

The current market for digital asset management is relatively small. Its AUM stands at around $49.3bn and its average daily volumes stood at $600mn on the 2nd of Jan 2023. To put this number in context, spot centralised exchanges traded an average daily volume of $43.2bn in December. 

While there are numerous digital assets, Bitcoin is by far the largest in terms of AUM, commanding a 72.7% share of the industry, growing from 60% at the start of 2023. 

The market is predominantly focused on Grayscale products, which currently account for around 68.5% of the total market. Excluding Grayscale, Canada and Europe lead with a market share of 25.1% and 55.9%, respectively. 

Probability of Approval - Is This Time Different? 

The SEC has consistently expressed concerns over market manipulation, liquidity, valuation, and the custody and security of the underlying Bitcoin. These concerns have led to a cautious approach from the SEC, resulting in numerous rejections and delays of proposed spot Bitcoin ETFs. 

However, two key developments have distinguished the current wave of Bitcoin ETF applications. 

• Firstly, the involvement of BlackRock, the world's largest asset manager, is notable due to its extensive experience in dealing with the SEC.
• Secondly, a significant court ruling directed the SEC to reevaluate a previously declined application from Grayscale, criticizing the regulator's process as "arbitrary and capricious," thereby casting doubt on the SEC's decision-making framework. 

These factors, along with numerous recent requests, emphasizing improvements in custodial, redemption, and issuance mechanisms, have significantly increased the probability of a Bitcoin ETF receiving approval.

Unlike previous years, one of the reasons for the ETF issuer’s strong case for acceptance has been the added details in the applications of the spot ETF. All 11 players have updated the exchange on which their ETFs are traded, with 6 of them choosing CBOE as their preferred venue. BlackRock’s IBIT will be traded on the Nasdaq while Grayscale’s GBTC will be traded on the New York Stock Exchange (NYSE). 

Meanwhile, 8 of the 11 players have chosen Coinbase as the Bitcoin Custodian. At the time of writing, only five applicants have named their authorised participants who are responsible for facilitating the creation and redemption of shares in the fund. Jane Street is included as the authorised participant in four of the applications. Meanwhile, BlackRock and Invesco have named J.P. Morgan as one of their authorised participants.

Regulatory Concerns

The U.S. Securities and Exchange Commission (SEC) has expressed several concerns regarding the process of issuance and redemption in the context of a Bitcoin spot ETF. These concerns primarily revolve around market manipulation, liquidity, and the valuation of underlying assets. 

Since Bitcoin trades on various exchanges and platforms, often with differing levels of regulatory oversight, there's a concern that prices could be prone to manipulation. This is particularly relevant for the creation and redemption process of a spot Bitcoin ETF, as it would directly involve the buying and selling of actual Bitcoin. 

Furthermore, while Bitcoin is relatively liquid compared to other cryptocurrencies, its liquidity can vary significantly across different exchanges and geographies. For a spot Bitcoin ETF, which would require frequent buying and selling of Bitcoin for share issuance and redemption, consistent liquidity is crucial to maintain fair pricing and efficient operations.

Impact of Approval

There is no doubt that the spot Bitcoin ETF approval in the US is a landmark victory for the industry, finally earning recognition and blessing from the SEC, a regulatory body that has been at the forefront of the criticism against the asset. However, many predictions have been made about the market impact of the ETF approval and the price action following the announcement. 

Though the catalyst is bullish for the long term, it is worth keeping in mind that the market has been on an uptrend since the start of 2023 which was then further accelerated with the anticipation of the approval. This indicates that we could see a “buy the news, sell the event” type of catalyst shortly after the announcement of the ETF.

Moreover, we could draw comparisons from the price action of Gold, an asset often compared against Bitcoin as an alternative store of value, on the approval of its first ETF in the US back in November 2004. The price of Gold had been rising steadily from $375 in May to $442 on the day of launch, November 18th, as markets anticipated the launch of the ETF. After a quick breakout to $454 a few days later, courtesy of inflows of nearly $1bn in the first few days, the price retraced to $411 in the early days of February 2005. Similarly, we could see a slight breakout in the price of Bitcoin before retracing for a healthy correction.

Nevertheless, the approval of spot Bitcoin ETF is set to spur the next cyclical breakout move for Bitcoin in the long term ahead of the Bitcoin halving event later this year. It is worth noting by August 2011, as gold prices hit a record high, SPDR Gold Shares (GLD) briefly became the world’s largest ETF, surpassing the SPDR S&P 500 Trust ETF in value. With Bitcoin vying for a similar position as Gold for the alternative asset class as the store of value, one can only wonder about the long-term growth potential for the Bitcoin asset class.