What value drivers do we see for cryptocurrencies?
In this article, we have chosen not to go into the most basic details about cryptocurrencies, but choose to take a closer look at what value drivers we see for cryptocurrencies? These are things that could act as value drivers for Bitcoin in particular, but also for Ethereum. We also look at what has happened to so-called Altcoins during the periods when cryptocurrencies, and Bitcoin in particular, have surged.
It has been a strong year for digital asset derivatives and investment products. This has been achieved without the actual approval of a US ETF that tracks the spot price of Bitcoin.
According to data from CoinShares, digital asset investment products have seen a net inflow of USD 1.14 billion since the beginning of the year. However, that is not the whole story, of this $1.14 billion, as much as $1 billion of this inflow has occurred in the last eight weeks, suggesting rising optimism across the market.
Not only have issuers such as BlackRock, Fidelity Investments and Franklin Templeton applied to launch spot bitcoin ETFs. Ethereum investment products experienced their highest weekly inflows in over a year when BlackRock applied for a spot ether ETF, indicating the growing attractiveness of the entire asset class. Fidelity followed suit, making it the seventh participant in the Ether race.
Bloomberg sees the effects of the record 2020/2021 run as open interest in Bitcoin options on Deribit (the largest crypto options exchange) hit a new record of $14.9 billion this week – surpassing the $14.4 billion during Bitcoin’s record-breaking run in the fourth quarter of 2021.
However, many analysts believe that the market has opened up more to institutional investors since the market euphoria of 2021. For example, the notional value of Bitcoin futures a so-called open interest on the CME group has now overshadowed that of Binance, the world’s largest crypto exchange. Coinglass’ figures show $4 billion in open interest on the former, compared to $3.8 billion on the latter.
Orbit Markets, notes that call options on cryptocurrencies have been in strong demand in recent weeks, although buyer interest currently ranges from a sensible $38,000 all the way up to a fanciful $100,000.
CoinShares Head of Analytics James Butterfill agrees, pointing out that the average Bitcoin investor is now more mature and sophisticated than in previous market cycles; “Bitcoin ETP trading volumes, in the absence of ETFs, accounted for 19 percent of total Bitcoin trading volumes on trusted exchanges. This is well above previous levels, suggesting that ETP investors are participating much more in the current rally than in 2020/2021”. He also modeled the potential impact of a US spot approval of Bitcoin: according to CoinShares, an inflow of just $2.5 billion could drive up the price of Bitcoin to $54,000.
While spot ETFs are still the immediate ambition for many investors seeking exposure to digital assets, it seems that many investment products are performing well even before ETF approval becomes a reality.
What happens to the Bitcoin price if a Spot ETF is approved?
An approval of a spot bitcoin ETF offered by BlackRock could bring $30 trillion to bitcoin, sending the BTC price to new heights. Roundtable’s Rob Nelson and Alex Mascioli, founders of trading signal and data provider Trade The Chain, evaluated the evolving landscape of cryptocurrencies, digging deep into the implications of a potential bitcoin exchange-traded fund (ETF) in the US and what it could mean for the crypto industry.
Bitcoin will rise by 337 percent
Bitcoin will rise 337 percent to $150,000 by mid-2025 as the world’s largest cryptocurrency begins a new cycle, analysts at Bernstein said in a recent report, due in part to major market movements in the industry, including bitcoin’s upcoming halving and the likely approval of the first Spot Bitcoin ETFs.
According to the report, bitcoin has historically increased whenever there is a halving, a predetermined event where the amount of bitcoin received to mine crypto is reduced. This happens every four years, with the next halving scheduled for April 2024.
Since halving essentially reduces the supply of bitcoin, crypto miners are less likely to sell accumulated tokens, as they expect higher future prices. Already, 70 percent of bitcoin tokens have not been sold in the past 12 months, analysts at Bernstein pointed out.
What happens to the Bitcoin price if the Spot ETF is not approved?
Bitcoin’s recent strong performance is at least partly due to optimism about the imminent launch of several spot ETF products in the US. In Europe, legislation prohibits a pure ETF as it must hold sixteen different types of assets. There is a single European ETF that tracks the price of Bitcoin, the Jacobi FT Wilshire Bitcoin ETF (BCOIN). Jacobi Asset Management (Jacobi) has listed Europe’s first Bitcoin ETF on Euronext Amsterdam, but it has received a lot of criticism mainly for how it is not a traditional exchange-traded fund. It has also not been able to attract as much capital as many of the early issuers of ETCs, a form of certificate on Bitcoin and other cryptocurrencies.
Unsurprisingly, analysts expect to see negative short-term price action if a Bitcoin spot ETF is rejected by the US Securities and Exchange Commission (SEC). However, a large number of crypto analysts pointed out that Bitcoin certainly does not base its existence on an ETF.
While the markets seem to have fully embraced the idea that the US Securities and Exchange Commission (SEC) will approve a spot bitcoin ETF although it is unclear when, it is worth considering what happens if the SEC continues to deliver continued rejections and what that could mean for the price of the cryptocurrency.
It is no surprise that analysts believe that there would be at least a negative short-term price impact on SEC rejections, but what to expect after this?
Any decline, said Laurent Kssis, a crypto trading advisor at CEC Capital. noted, must be balanced against other bullish catalysts, such as the approaching halving. “A $25,000 cluster is highly unlikely unless the SEC is categorical, but I feel it will be a situation that goes back to the drawing board and hope will still be in the back of everyone’s mind.”
“If a first US ETF tracking Bitcoin doesn’t get approved, I think it would be a significant downturn for the market,” said Martin Leinweber, product strategist at MarketVector Indexes.“A spot Bitcoin ETF is often seen as a hallmark of institutional acceptance and integration into mainstream financial systems.”
Leinweber added that a rejection could also trigger some legal turbulence for the SEC, which in June suffered a major court loss when it ruled that the agency was “arbitrary and capricious” in its rejection of Grayscale’s attempt to convert its Bitcoin Trust (GBTC) into a spot ETF. In October, the SEC failed to appeal the ruling, which helped lead to current expectations for future approvals.
Leinweber notes that Bitcoin, as a decentralized entity, certainly does not depend on its existence on an ETF, but “a rejection would undeniably cast a bearish shadow on the Bitcoin price in the short term.”
“I think the absence of an ETF would bring significant pressure on the crypto market” he said. “It would require a period of adjustment and realignment, as the market would need to decouple and create a new narrative going forward.”
Other crypto assets like ether (ETH) would likely not be immune to these repercussions, especially given that the SEC would next shift its focus to the spot ether ETF filings.
Bullish action goes beyond ETFs
“If a spot ETF is not approved soon, we believe Bitcoin’s investment case for 2024 remains very strong,” said Hashdex CIO, Samir Kerbage. “More investors are starting to appreciate the benefits of bitcoin as a store of value or type of digital gold”.
Kerbage also noted that the next Bitcoin halving is approaching and “if history once again rhymes, the price of BTC will react positively to this planned reduction in supply.”
“Regardless of when a spot bitcoin ETF is approved, the outlook for the world’s first and largest cryptocurrency has never been stronger,” he concluded.
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