THE SPOT BITCOIN ETF HAS BEEN APPROVED! WHAT NEXT?
The long-awaited spot Bitcoin ETF has been approved by the Security and Exchange Commission (SEC) in the United States on Wednesday 10th, January 2024. This event was highly anticipated and prior to its approval, caused a lot of volatility in the market as there were several speculations and questions by investors.
The most important question being asked now is, “Now that the spot Bitcoin ETF has been approved, what next? How will this impact the price of Bitcoin? What are the short-term and long-term effects of this remarkable decision by the SEC?
Before you read further, if you want to know the basics of what a Spot Bitcoin ETF is, I will recommend you read part one of this article first >>>https://roqqupay.medium.com/bitcoin-spot-etf-prior-to-secs-decision-9ac9cd03412b
THE LONG-TERM EFFECT & PRICE IMPACT OF THE SPOT BITCOIN ETF APPROVAL
Exposure to New Market: The Spot Bitcoin ETF approval has opened Bitcoin up to Traditional Investors. These investors would not trade Bitcoin normally due to regulatory and security concerns. But now it has been transformed into a financial instrument they are used to and are comfortable with, they will easily trade it, thereby indirectly investing in Bitcoin.
This is considered as a super bullish move because there is a lot of volume in the traditional financial sector, and for this ETF approval, even if it’s a tiny fraction of this volume that flows into Bitcoin, they price impact will be great
For instance, on the first day of approval, over $ 4.5 billion in trading volume was recorded, and this can only get bigger. In the long run, it is believed that several trillions of dollars will flow into the cryptocurrency market from the traditional financial systems. This will positively impact the price of Bitcoin
Bitcoin Goes Mainstream: Another remarkable factor about the spot Bitcoin ETF approval is the caliber of Asset Managers behind it. Big names like BlackRock, Grayscal, Fidelity etc. who manage several $trillions are the main proponents of the spot Bitcoin ETF. It won’t take long for their counterparts to see the value in it and eventually file to take part in this market. Overtime, the Spot Bitcoin ETF will become a mainstream financial instrument.
If you understand how Spot ETFs work, you will know that increased demand in the Spot Bitcoin ETF window will result in an increase in demand for Bitcoin. This is bullish for Bitcoin
Clearer Regulatory Framework: In order to protect the traditional investors, the SEC has set up some stringent measures and guidelines to check the companies who offer this Spot Bitcoin ETF to ensure that they don’t involve themselves in market manipulation. This move is designed to protect investors. However, to properly regulate the activities of these companies offering the Spot Bitcoin ETF, the need to regulate how individuals buy and sell actual Bitcoin has become very necessary.
A clearer regulatory framework for cryptocurrency trading is just a matter of time. It will eventually happen and as a result give Bitcoin more validation among traditional investors
Market Integration: The adoption of Bitcoin by traditional investors will bring about its integration with the regular stock and commodity market price movement. Since its inception, it has been very difficult to correlate the price of Bitcoin with other asset classes. This will eventually change as adoption grows.
The risk sentiment in the financial market will now largely affect Bitcoin’s price as it’s the same set of persons that trade Bitcoin, that also trades in the traditional financial market.
High price correlation with the stock market or/and the commodity market like Gold and silver.
Market Manipulation: The financial market is heavily manipulated by those with big funds. When more big players enter the cryptocurrency market, they can decide what happens to the price of any asset by merely buying or short-selling the asset in a coordinated manner.
The big companies offering this spot Bitcoin ETF alongside other big investors (whales) might be tempted to control price to their favour in order to maximize profits. Therefore, the SEC will have to closely monitor how these big players conduct themselves, in order to check price manipulation and insider trading.
THE SHORT TERM PRICE IMPACT OF THE SPOT BITCOIN ETF APPROVAL
Sell the News Event: While we saw a remarkably high volume of over $5 billion on the first day of approval of the spot Bitcoin ETF, it came as a shock to many traders that the price of bitcoin didn’t maintain an upward trajectory, rather the price went down. To those who already understand this market, this was not surprising as there is a phenomenon in the market known as “Buy the Rumor, and Sell the News”.
Since 2023, there has been rumors of a potential approval of the spot Bitcoin ETF, certain investors positioned ahead of time. This caused the price of Bitcoin to move from ranging around $28,000s to over $40,000. So upon approval, it was simply a time to take profits for them, hence the outcome in Bitcoin’s price temporary decline.
Thankfully, it was approved, because if it wasn’t approved, the sell pressure would definitely be higher than what we have witnessed so far.
SUMMARY
The spot Bitcoin ETF approval is in general a bullish event in the crypto market as it opens up opportunities for more adoption which will in turn impact the price of Bitcoin positively in the long run. Though this might also come with big players trying to manipulate price to their favour.
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