Bitcoin ETFs are a Game-Changer
Why the industry can benefit from a Bitcoin ETF financial product.
Bitcoin investors have had a very good October. We have seen the price of 1 BTC exceed $35,000 for the first time since May 2022, with an increase of nearly $9,000 in 1 month. This brings Bitcoin’s year-to-date ROI to over 100%, while the ROI of gold and the S&P 500 is virtually flat. Taking into account the effect of inflation on purchasing power, investment in gold and the US stock market may have actually lost value.
The price of Bitcoin can never be attributed to one single factor, but a notable event in October 2023 that had a significant impact was the premature announcement that BlackRock’s iShares Bitcoin Trust (a spot Bitcoin ETF) had finally been approved by the SEC. BlackRock CEO Larry Fink appeared to Fox Business to state that this was just a rumor, but it is widely anticipated that it will become a confirmed fact in the near future. Since the SEC lawsuit against Ripple (XRP) in the Southern District of New York was defeated, the legal basis for blocking Bitcoin ETFs is greatly diminished. It has become increasingly clear that SEC Commissioner Gary Gensler and Massachusetts Senator Elizabeth Warren have failed in their crusade against crypto.
In addition to BlackRock’s iShares Bitcoin Trust, several other Bitcoin ETFs are also pending SEC approval: Ark 21Shares, VanEck Bitcoin Trust, WisdomTree Bitcoin Trust, Fidelity Wise Origin Bitcoin Trust, and Invesco Bitcoin Galaxy ETF. It is likely that once the first Bitcoin ETF is approved, the others that meet the criteria will also be approved shortly thereafter.
The existence of a Bitcoin spot ETF could dramatically and immediately increase the demand for Bitcoin, which is why the premature news about the approval of BlackRock’s ETF had such a powerful impact on the price. Bitcoin ETFs will attract capital from institutional and retail investors who want to gain exposure to Bitcoin profits without the hassle and risk of storing it directly.
One of the benefits of Bitcoin ETFs is that they can reduce the barriers to entry for investors who are not familiar with the technical aspects of buying and storing Bitcoin. According to a survey by NerdWallet, 71% of Americans are not comfortable investing in cryptocurrencies, citing reasons such as lack of knowledge, security concerns, and volatility. Bitcoin ETFs can address some of these issues by providing a simple and regulated way to access the crypto market through a familiar investment vehicle.
Another benefit of Bitcoin ETFs is that they can increase the liquidity and efficiency of the Bitcoin market. By creating a link between the spot and futures markets, Bitcoin ETFs can help reduce the price discrepancies and arbitrage opportunities that exist between different platforms. This can also improve the price discovery and transparency of Bitcoin, making it more attractive for institutional investors who demand high standards of market quality.
As a manufacturer of cryptocurrency cold storage products, we at Ballet strongly believe in the superiority of self-custodial storage. Owning Bitcoin through an ETF offers the same profit potential as owning Bitcoin directly, but there are several drawbacks: counterparty risk, management fees, regulatory restrictions, lack of privacy and control, etc. Nevertheless, it is better to own Bitcoin through an ETF than not own any Bitcoin.
When estimating the amount of capital that could potentially flow into Bitcoin in the coming years, one important factor to consider is how wealth is distributed among different age groups. In the United States, the 50+ age group constitutes 35.9% of the population and owns 79.5% of the wealth; the 65+ age group constitutes 16.8% of the population and owns 40.8% of the wealth. The older age group is the least likely to acquire and hold Bitcoin through self-custodial means, so Bitcoin ETFs will provide an excellent opportunity for them to get exposure to the world’s most lucrative financial asset. Also, the natural process of generational turnover will result in wealth being inherited by younger generations that are already comfortable with Bitcoin. This structural feature of the economy will drive an ever increasing proportion of global capital into Bitcoin for decades to come.
Every Bitcoin investor should be thrilled at the prospect of hundreds of billions of dollars flowing into Bitcoin through the gateway of Bitcoin ETFs. Although ownership through a Bitcoin ETF is not optimal, self-custodial owners of Bitcoin will benefit from price appreciation. Hopefully, those investors who get their first taste of Bitcoin through an ETF will eventually graduate to self-custodial ownership as they become educated on the benefits of controlling their own private keys. Ballet’s foundational mission is to serve these new adopters.
In summary, Bitcoin ETFs are a game-changer for the crypto industry and the global financial system. They offer a convenient and accessible way for investors to participate in the phenomenal growth of Bitcoin, while also enhancing the liquidity and efficiency of the market. Bitcoin ETFs are not only beneficial for the investors who buy them, but also for the self-custodial owners of Bitcoin who will enjoy the price appreciation from increased institutional and retail demand. The rise of Bitcoin ETFs is a win-win situation for everyone who aspires to financial freedom and security.