What happens if the Bitcoin ETF fails?

Consequences of a Failed Bitcoin ETF

Source: Decrypt

Author: Mat Di Salvo

Translation: Guan

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Bitcoin ETF Image: Shutterstock

Investor’s Hope

Investors have been waiting for a Bitcoin spot ETF for almost a decade and it now seems closer than ever.

Rumors about the approval of BlackRock’s Bitcoin ETF application by the US Securities and Exchange Commission sparked a major surge in Bitcoin prices on Monday.

Analysts and experts in the field have suggested that a cryptocurrency Exchange-Traded Fund (ETF) may be listed in January or even earlier. However, the listing of the ETF is not entirely certain as the US SEC has been reluctant to approve such a product in the past.

The ETF would track the price of Bitcoin, allowing investors to gain exposure to the risk without dealing with digital wallets, exchanges, or private keys. Due to the elimination of technical barriers, some analysts and Bitcoin evangelists believe that such a fund could lead to a flood of money into the Bitcoin market.

Can ETF create hype?

The answer is: not everyone thinks so. JPMorgan researchers pointed out as early as July that the trading products on Canadian and European spot cryptocurrency exchanges have not generated significant interest among investors.

Bloomberg Intelligence analyst Eric Balchunas stated, “There may be a gap between early hype and actual demand,” and added, “When a Bitcoin ETF eventually starts trading on a stock exchange, its performance might not be as good. Even the first futures-based cryptocurrency ETF, which launched two years ago, broke records.”

The difference between a futures-based cryptocurrency ETF and a spot market ETF is that the stocks investors purchase provide exposure to derivatives tied to the future price of the cryptocurrency (rather than the assets themselves). Despite rejecting spot market applications for years, the US SEC approved the futures product at the height of the bull market.

Experts say, “I wouldn’t be surprised if the performance of a spot market Bitcoin ETF significantly lags behind the flow of BITO (ProShares Bitcoin Strategy ETF) because BITO was launched at the peak of the frenzy.” “I’m preparing something much more modest than BITO, but I think it will be very successful within three to five years.”

BITO began trading in October 2021 when Bitcoin was priced at $64,000 per coin. At that time, there was massive demand for all cryptocurrencies, and the product traded $280 million worth of stocks in the first 20 minutes. By the end of the first day, nearly $1 billion worth of stocks had changed hands.

But since then, the prices of all digital assets have plummeted, and the industry has been plagued by bankruptcy, hacking, and fraud, which may scare away potential Bitcoin ETF investors, especially those who have already suffered losses.

ETF development still has a long way to go

Baltuchnas added: “The Ethereum futures ETF launched earlier this month has had a slow start.” “A lot has happened, and it has also endured a lot of burdens. Although Bitcoin is making a comeback this year, I believe it will still weaken.”

Adam Guren, co-founder of the cryptocurrency hedge fund Hunting Hill Digital, said: “Compared to 2021, liquidity restrictions at today’s exchanges are also a consideration.” He pointed out the challenge of “even if the inflow on the first day reaches 500 million US dollars, it is noteworthy.”

Experts point out that the SEC currently has a long list of Bitcoin ETF applications that need approval. Some speculate that they may be approved simultaneously, which would result in a diversification of interests. But experts unanimously believe that in the long run, the approval of such products would benefit Bitcoin.

James Seyyfart, a Bloomberg analyst, said: “More and more investors are interested in spot products rather than futures products.” “Looking at a one-year timeframe, I believe there will be more demand for spot ETFs than futures ETFs.”

Guren added, “The approval of a spot Bitcoin ETF will represent an important milestone and pave the way for a more favorable environment for cryptocurrency investment in the United States.”

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