Bitcoin (BTC) surpassed the $40,000 mark for the first time since May 2022, driven by positive sentiment likely fueled by the anticipation of regulatory approval for a Spot Bitcoin exchange-traded fund (ETF). The potential approval of a Bitcoin ETF has been a hot topic of conversation in the industry over the past few months, with some experts claiming that it could mitigate BTC's price volatility and increase its liquidity. Meanwhile, Grayscale, a major crypto asset management firm, is gearing up for this possibility, appointing an ETF veteran, John Hoffman, to lead its distribution and partnerships team as it prepares for the launch of a Bitcoin ETF hopefully within the next few weeks.
BTC Trading Above $40K!
On Sunday, the value of BTC surged past $40,000, making this its first ascent to this level since May of 2022. While BTC had been testing the $40,000 threshold in the past few days, it successfully crossed this milestone on Sunday and was trading at over $40,600 at press time. This came after the market leader’s price was able to climb by over 3% in the past 24 hours of trading.
Daily chart for BTC/USDT (Source: TradingView)
Most of the top 10 cryptocurrencies by market capitalization were also able to see their prices rise throughout the past day. However, their gains were still a bit smaller than that of BTC. The price of the largest altcoin by market cap, Ethereum (ETH) , rose by about 2.57% over the past day, which left it trading at over $2.2K.
In April of 2022, the price of BTC dropped below the $40,000 mark. However, in recent months, it has experienced a resurgence, primarily driven by what appears to be accommodative remarks from U.S. central bank officials and the anticipation of regulatory approval for a Spot Bitcoin ETF to launch in the United States. Similarly, ETH had not seen values above $2,200 since May of 2022, although it has approached this level a few times.
The Impact of an ETF Approval on the Price of BTC
The cryptocurrency community as a whole has been holding its breath in anticipation of a Spot Bitcoin ETF approval, and many are curious whether it will have a bullish impact on the price of the cryptocurrency king. There is also uncertainty whether an ETF approval will subdue BTC’s very notorious price volatility, which has prevented it from being considered a haven asset.
Although the Bitcoin blockchain is decentralized, the ownership of its associated token, BTC, is relatively concentrated among a small group of individuals referred to as "whales." Due to the very large size of their holdings, these whales have significant influence over BTC prices, frequently causing dramatic fluctuations. The introduction of a spot ETF, designed to closely mirror the underlying asset's value, has the potential to mitigate their impact by expanding the ownership base a bit.
Galaxy Digital's projections suggest that a U.S. Bitcoin ETF could tap into a market worth approximately $14 trillion within the first year following its launch. Furthermore, by the third year, this market size could potentially expand to a staggering $39 trillion.
A strong uptake like this could boost liquidity in the underlying asset, ensuring less volatile trading conditions where prices don't fluctuate as much or as rapidly. A 2018 research paper written by Mehmet Saglam, an associate professor of finance at the Carl H. Lindner College of Business at the University of Cincinnati, along with Tugkan Tuzun, an economist at the Federal Reserve Board, and Russ Wermers, an associate professor of finance at the Smith School of Business, suggests that in the realm of equity markets, an increase in the ownership of ETFs tends to enhance the liquidity of the underlying stocks.
On the other hand, Laurent Kssis, a crypto trading advisor at CEC Capital and an expert on ETFs, holds an opposing viewpoint, suggesting that spot ETFs could potentially introduce more volatility to the price of BTC. ETFs are typically generated and redeemed using one of two methods: in-kind or in cash. In the widely utilized in-kind creation process, authorized participants (APs) deposit a bundle of securities with the ETF issuer in exchange for new ETF units. Alternatively, in cash creation, APs provide cash, and the issuer purchases the actual asset. Kssis explains that in the case of cash creation, the issuer becomes exposed to the difference between the acquisition prices of the assets and the daily reference price used to calculate the ETF's net asset value (NAV).
Grayscale Already Preparing for Bitcoin ETF
Grayscale , a crypto asset management firm, has appointed John Hoffman, formerly the Head of Americas at Invesco, to head its distribution and partnerships department. This move comes just six weeks before a crucial decision is expected regarding Grayscale's potential launch of a Bitcoin ETF.
Hoffman, who is well-versed in ETFs, boasts over 17 years of experience at Invesco, where he initially served as the director of ETF institutional sales and capital markets at Invesco PowerShares Capital Management. He later transitioned to an advisory role and, most recently, led the Americas team responsible for ETF and index strategies.
Grayscale has plans to transform its GBTC Bitcoin trust into an ETF, and this transformation is expected to take place in January. This timeline aligns with the Securities and Exchange Commission's (SEC) decision regarding the approval of 13 potential spot Bitcoin ETFs, including those from major firms like BlackRock, Invesco, and Franklin, among others.