Why are investors interested in Bitcoin ETFs?

  1. Expected to attract incremental capital

As of October 2023, the total assets managed by the U.S. wealth management market, comprising broker-dealers ($27.1 trillion), banks ($11.9 trillion), and registered investment advisors ($9.3 trillion), amounted to $48.3 trillion. Based on these figures, GalaxyDigital estimates that, over a longer period, the potential scale of capital invested in Bitcoin products could range between $125 billion to $450 billion.

  1. Regulatory oversight

A bitcoin ETF would be subject to regulatory oversight, providing investors with a level of protection and transparency. This regulatory oversight can help reduce concerns about fraud and market manipulation, which can be more prevalent in unregulated cryptocurrency markets.

  1. Ease of access

ETFs are traded on traditional stock exchanges, making it easier for mainstream investors to buy, hold and trade the bitcoin-related asset through their existing brokerage accounts. This accessibility is particularly appealing to investors who are not familiar with cryptocurrency exchanges or are hesitant to use them.

  1. Mainstream acceptance

The introduction of a bitcoin ETF can be seen as a sign of mainstream acceptance and integration of cryptocurrencies into traditional financial systems.

Is Bitcoin at risk of a 'sell the news' event?

  • Anticipation effect on market dynamics: There's a consensus among experts that if the U.S. greenlights a Bitcoin spot ETF, it could trigger short-term market sell-offs. This reaction might occur because the market often incorporates such expectations in advance. Investors need to be cautious of this phenomenon where the market rallies on anticipation but sells off upon the actual news ("buy the rumor, sell the news").

  • Bitcoin halving as a key event: The upcoming Bitcoin halving in April 2024 is poised to be a critical event. Historically, the six months leading up to a Bitcoin halving have seen notable market movements, with significant volatility typically occurring right before the halving. With the concurrent peak in Bitcoin spot ETF applications, a heightened period of volatility and market activity in the Bitcoin market is expected around this event.

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