Bitcoin ETF May Not Bring The New Hype As The Sector Expects

Key Points:

• The debate over approving a new Bitcoin exchange-traded fund (ETF) in the US continues, with proponents arguing it would attract over $50 billion in demand.
• Skeptics question the necessity of a US spot ETF, as investors have already had access to exchange-traded Bitcoin products for years.
• The outcome of the discussion could shape the mainstream adoption of BTC and impact the future of the crypto industry.

According to Bloomberg, the discussion around the approval of a new Bitcoin exchange-traded fund (ETF) has intensified, with proponents and skeptics presenting contrasting arguments.

Advocates of a US spot ETF believe it would attract a significant influx of investors, potentially generating over $50 billion in demand. This optimism was reignited by recent applications from BlackRock, leading to a 20% rally in Bitcoin since mid-June.

On the other side of the debate, skeptics argue that a US spot fund may not be a game-changer. They point out that investors who wanted exposure to exchange-traded Bitcoin products with functionalities similar to spot trackers have already had access to them for over two years, albeit imperfectly. The initial excitement surrounding the debut of the first US Bitcoin futures-backed ETFs in October 2021 quickly fizzled out, with limited subsequent inflows.

JPMorgan has weighed in, stating that the approval of a US spot Bitcoin ETF would not have a transformative impact on the sector. They draw on the experiences of Canada and Europe, where such products have existed for years without significant investor interest or inflows. Bloomberg Intelligence offers a different perspective, highlighting that demand in the US, with its larger ETF market and wider usage, could be stronger compared to Canada and Europe.

Analysts at Bloomberg Intelligence estimate that if crypto exchange-traded products accounted for 1% of all Canadian ETF assets, a similar trend in the US would suggest a potential asset value of approximately $54 billion. This context is significant considering the $137 billion currently held in US commodity ETFs.

The anticipation for a US spot Bitcoin ETF has generated substantial excitement. Supporters argue that its approval would not only make Bitcoin investment more accessible but also demonstrate the industry’s integration into the mainstream. Even former crypto skeptic Larry Fink, CEO of BlackRock, has acknowledged Bitcoin’s potential as a diversification tool.

Meanwhile, the price of Bitcoin has been hovering around $29,880, just above a one-month low. Economic data confirming the continued growth of the US economy and the near certainty of another Federal Reserve rate hike next week have impacted market sentiment.

What little uncertainty there was about the outcome of the Fed’s policy-setting Federal Open Market Committee (FOMC) meeting next week has been largely removed, with traders now pricing in a 97.3% likelihood of another 25 basis point rate rise, according to the CME FedWatch Tool.

Although the debate continues, the final decision on approving a US spot Bitcoin ETF lies with the Securities and Exchange Commission (SEC). The outcome will shape the future landscape of Bitcoin investment and potentially have broader implications for the crypto industry’s mainstream adoption.

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