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D-1 Until The Dawn of Spot Bitcoin ETFs: BTC Price to $47K and What Lies Beyond SEC Approval

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2024-01-09
D-1 Until The Dawn of Spot Bitcoin ETFs: BTC Price to $47K and What Lies Beyond SEC Approval

As the whole crypto market is eagerly awaiting approval of spot Bitcoin ETFs by the SEC, recent developments indicate that major players in the financial space are making optimistic strides toward this historic milestone, setting the stage for a potential paradigm shift in the market.

Progress Towards SEC Approval

As of January 6, 2024, all 11 spot Bitcoin ETF issuers have filed crucial 19b-4 amendment forms, showcasing a united front in their pursuit of SEC approval. These filings, including 19b-4 amendments and updated S-1 filings, address feedback from the SEC and indicate a collective push toward compliance.

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Prominent names such as BlackRock, Grayscale, and Fidelity are among the issuers actively engaging with the SEC. Executives and representatives from these firms have expressed confidence in the progress, hinting at expectations for approval in the coming days. While optimism prevails, insiders caution that filing amendments doesn't guarantee approval, but it underscores a proactive approach to meeting regulatory requirements.

Reports also reveal that investment management firms, stock exchanges, and the SEC engaged in discussions to finalize wording changes on filings for spot Bitcoin ETFs. These discussions centered around the S-1 prospectus documents, a critical component of the ETF approval process. Despite the anticipation of minor changes, multiple issuers expect final approval of S-1 filings by the middle of this week.

The involvement of authorized participants takes center stage in the latest developments in the past few days. These participants, essential actors in the creation and redemption process of ETF shares, have become a focal point in the quest for spot Bitcoin ETF approval. Recent filings from major issuers such as BlackRock, Grayscale, and Fidelity have named these authorized participants such as JPMorgan Chase, Jane Street, and Cantor Fitzgerald.

Anticipated SEC Decision and Approval Timeline

A significant deadline looms on the horizon, with the SEC having set January 10 as the final date for action on at least one spot Bitcoin ETF application – in this case, the one filed by ARK Investment Management and Swiss crypto manager 21Shares. This timeline suggests that the regulator may extend approvals to multiple applications it deems ready for the green light at the same time to avoid first-mover advantages and ensure fairness.

In an unusual move, the SEC has asked issuers anticipating launches this week to prepare written requests for accelerating the effective date of their ETFs. Typically, these timelines are discussed informally, but the SEC's formal request indicates a shared commitment to expediting the process.

The SEC commissioners are reportedly expected to vote on exchange-rule filings this week. While it's not yet clear if this vote will encompass all applicants, insiders suggest that it's a critical step towards establishing a framework for spot Bitcoin ETFs.

What May Unfold After SEC Approval

If the SEC grants approval for spot Bitcoin ETFs, the crypto market could witness significant transformations. Opinions vary on the immediate impact, with some analysts cautioning against overestimating the initial inflow of investment.

Gabor Gurbacs, the Director of Digital Assets Strategy at VanEck, suggests that while a spot ETF will create "trillions in value" over the long term, the initial flows may only amount to "a few hundred million of (mostly recycled) money." This perspective emphasizes the need to temper short-term expectations while acknowledging the potential for substantial long-term growth.

Analysts predicting a "supply shock" and a radical shift in supply and demand dynamics argue that ETF issuers may need to purchase tens of billions of dollars worth of Bitcoin to satisfy institutional demand. The scarcity of Bitcoin on exchanges, indicated by a five-year low in October 2023, suggests that holders are increasingly opting to store it in personal wallets rather than sell, potentially leading to a reduction in circulating supply.

Historical Precedents and Market Dynamics

Examining historical precedents provides insights into potential market reactions. For instance, the debut of the SPDR Gold Shares ETF (GLD) in 2004 attracted $1.9 billion in inflation-adjusted terms within its first four weeks, reaching $4.8 billion by the end of the first year. The current total assets of GLD stand at an impressive $57.37 billion.

Similarly, the ProShares Bitcoin Strategy ETF (BITO), based on Bitcoin futures, accumulated approximately $1.5 billion in inflation-adjusted terms within 30 days of its introduction in October 2021. While BITO is exposed to rollover costs and invests in regulated CME futures rather than actual cryptocurrency, its ability to closely track Bitcoin's spocc2d16b9-75a2-4ee3-add2-641c4920b5dd underscores its viability as an option for those seeking exposure without the complexities of ownership.

Adding a unique twist to the current market dynamics is the proximity of the potential spot Bitcoin ETF approval to the fourth Bitcoin halving, scheduled for April 2024. Historically, Bitcoin halvings have been associated with significant price rallies, as the reduction in the issuance of new coins accentuates the asset's scarcity. The combination of a potential spot Bitcoin ETF approval and the fourth halving could create a powerful catalyst for Bitcoin's price, with market participants closely monitoring this convergence of events.

Unique Aspects of Spot Bitcoin ETF Approval

What sets the approval of spot Bitcoin ETFs apart is the tangible involvement of actual Bitcoin, removing supply from the market. Unlike previous events that allowed synthetic shorting, the spot ETFs involve institutional investors gaining exposure to native Bitcoin, a significant departure from derivative-based exposure.

Institutional investors, traditionally conservative in their approach, will now have a streamlined avenue to add Bitcoin exposure directly through spot ETFs. This shift may further legitimize Bitcoin as an asset class and enhance its acceptance among mainstream financial institutions.

Disclaimer: The opinions expressed in this article are for informational purposes only. This article does not constitute an endorsement of any of the products and services discussed or investment, financial, or trading advice. Qualified professionals should be consulted prior to making financial decisions.