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As the Bitcoin price continues to flirt around $37,500 levels analysts are still confident of fresh inflows leading to the launch of spot Bitcoin ETF. Tentatively, the US SEC shall approve the ETF by January 2024.
However, analysts remain divided over whether the Bitcoin ETF launch could see potential inflows or it will just be a sell-the-news event. To understand this, let’s take a look at how digital gold aka Bitcoin compares that with the yellow metal Gold.
Spot Gold ETFs vs Spot Bitcoin ETFs
Examining the historical introduction of the first gold ETFs provides insights into the potential impact of the forthcoming Spot Bitcoin ETF on their respective assets.
The launch of the inaugural spot gold ETFs in 2003 marked a significant milestone in finance, triggering a substantial surge in gold prices. Over the following decade, gold’s value soared from approximately $350 per ounce to a peak of around $1,815.50 in 2012. This remarkable growth resulted in an annualized return exceeding 15%, with a total appreciation surpassing 400%.
This historical precedent offers an optimistic perspective on the potential influence of the first Spot Bitcoin ETF on Bitcoin’s market. If Bitcoin follows a similar trajectory as gold did post the approval of the first spot gold ETF, a notable uptick in its price could be expected.
While favorable macroeconomic conditions and a weakening US dollar played roles in gold’s impressive performance during that period, the introduction of the gold ETF significantly enhanced accessibility for a broader range of investors, contributing to gold’s price appreciation.
Addressing Limitations
In the context of Bitcoin, the anticipation surrounding the introduction of a Spot BTC ETF has generated comparable excitement. Despite this positive growth narrative, some analysts raise concerns about the actual market size for Bitcoin ETFs, pointing out that existing products like Grayscale’s Bitcoin Trust (GBTC) or MicroStrategy’s stock capture less than 7% of the total Bitcoin supply.
However, these current options are deemed suboptimal from an institutional perspective due to issues like GBTC’s high fees and non-redemption structure. Similarly, MicroStrategy’s Bitcoin holdings, while providing exposure, involve variables beyond Bitcoin’s performance, as per the Glassnode report.
The Spot BTC ETF shall address these limitations, providing a more direct and regulated investment avenue into Bitcoin. This is likely to attract substantial new capital, particularly from institutional investors seeking a conventional and streamlined method to invest in Bitcoin.
Despite optimism, critics suggest that the ETF’s introduction may lead to a mere reshuffling of funds, especially if GBTC transitions to an ETF format, allowing for outflows. Thus, it remains essential to assess alternative indicators of demand entering the Bitcoin space post-ETF approval.
Estimating total Bitcoin Inflows
In a comprehensive analysis, the Bitcoin ETF can see potential inflows from stock and bond markets, as well as the gold market. With a macroeconomic shift towards hard-value assets, a substantial movement of capital from stocks and bonds to Bitcoin is much more likely.
Assuming 10% of the combined AUM of key ETFs could shift to Bitcoin, approximately $60.6 billion is estimated. Additionally, a hypothesized 5% shift from the gold market could contribute around $9.9 billion. This potential $70.5 billion influx, although optimistic, aligns with Galaxy Digital’s projection of $14 billion inflows in the first year, signaling a significant impact on Bitcoin’s market and potential price surge.
With the probable participation of renowned entities such as BlackRock, Fidelity, and Invesco, the market for spot Bitcoin ETFs has the potential to evolve into a formidable $100 billion force, as per estimates from Bloomberg Intelligence.
Top players like BlackRock and others have been revising their ETF filings while addressing the SEC’s concerns. This shows that the final announcement could be likely very soon.
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