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The Impact of Spot Bitcoin ETF Approval on the Global Crypto Market

The Impact of Spot Bitcoin ETF Approval on the Global Crypto Market

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2024-01-24 | 5m

The recent approval of spot Bitcoin ETFs by the SEC on January 10 marked a significant milestone in the history of cryptocurrency. The anticipation was palpable as these ETFs commenced trading on January 11, ushering in a new era for investors who want to gain exposure to crypto assets. However, the aftermath has been nothing short of a rollercoaster ride, with billions of USD in trading volume in the first day of trading, subsequent Bitcoin price fluctuations, unexpected challenges for existing players like Grayscale Bitcoin Trust (GBTC), the global impacts of SEC’s approvals, and the potential for a spot ETH ETF in the US.

The Spectacular Debut

The debut of spot Bitcoin ETFs on January 11 was nothing short of spectacular, with $4.6 billion in volume recorded on the first trading day. Investors, both seasoned and new, flocked to the market, capitalizing on the opportunity. They were eager to capitalize on this new investment vehicle that promised broader access to Bitcoin, traditionally considered a volatile yet lucrative asset.

According to Bloomberg Intelligence data, there is an influx of funds into newly launched spot Bitcoin ETFs. In the first six trading days, nine spot Bitcoin ETFs drew approximately $4 billion in inflows. Notably, BlackRock and Fidelity led the charge, each securing over $1 billion in inflows. In stark contrast, investors pulled a staggering $2.8 billion from the Grayscale Bitcoin Trust (GBTC) after it transformed into an ETF from a trust on January 11. However, GBTC still maintained its status as the largest, boasting $22.9 billion in assets.

GBTC Struggles Despite Leading the Fight for Bitcoin ETF Approval

Despite winning a historic legal battle against the SEC and paving the way for the approval of spot Bitcoin ETFs in the US, GBTC has been facing significant setbacks as investors rapidly cashed out $2.8 billion after it became an ETF. As of January 19, GBTC remains the largest Bitcoin fund with $22.9 billion in assets but is grappling with the consequences of the mass withdrawal.

The fee reduction by Grayscale, from 2% to 1.5%, aimed to compete with the newly approved ETFs. However, rivals like BlackRock and Fidelity went further by offering promotional rates as low as zero for the initial months, intensifying the fee war. Investors, seeking cost-effective alternatives, migrated to these new ETFs, contributing to GBTC's challenges.

Adding to the challenges, reports emerged that the bankrupt crypto exchange FTX sold a substantial portion of its GBTC holdings, amounting to $1 billion. This move by FTX further intensified the pressure on GBTC, contributing to its struggles in the post-ETF approval era.

To know more about the struggles of GBTC post-ETF approval, please read Understanding the Recent GBTC Sell-Off: Causes and Impacts on Bitcoin Price.

Bitcoin's Price Rollercoaster

Contrary to the optimistic expectations surrounding the Bitcoin ETF debut, the cryptocurrency market witnessed a rollercoaster ride in the following weeks. Bitcoin, which stood at $46,000 on January 10, experienced a significant 16% dip, falling below $39,000, and at one point trading as low as $38,600 on January 23. This unexpected downturn puzzled investors, especially considering the historic approval of the spot Bitcoin ETFs.

The price volatility can be attributed to various factors. Firstly, profit-taking by early investors in GBTC played a role, as the trust had faced a discount to its underlying Bitcoin value since early 2021. Additionally, an intense fee war among asset managers, coupled with the entry of new ETFs, created market dynamics contributing to Bitcoin's downward trajectory.

Global Ripple Effects

The approval of spot Bitcoin ETFs in the U.S. sent shockwaves globally, prompting changes in crypto ETF landscapes. In Europe, Invesco and WisdomTree led the charge by reducing fees on their European-listed Bitcoin ETPs by more than 60%. The influx of new U.S. products triggered an "unprecedented supply of new products" for American investors, resulting in a considerable reduction in prices compared to existing European tracking products. Specifically, WisdomTree's Physical Bitcoin ETP saw its fees drop from 0.95% to 0.35%, while Invesco's Physical Bitcoin ETP reduced fees from 0.99% to 0.39%. These changes, announced within days of each other, are set to take effect before the end of the month.

The impact of the spot Bitcoin ETF approval extended beyond the Western hemisphere, with Hong Kong and South Korea eyeing their own crypto ETF launches.

Hong Kong-based financial services firm Venture Smart Financial Holdings Ltd. plans to launch its spot Bitcoin ETF within the first quarter of 2024, targeting $500 million in assets under management by year-end. Hong Kong's regulatory body, the Securities and Futures Commission (SFC), began accepting applications for spot crypto ETFs in December of 2023. This move followed the introduction of a crypto licensing regime in June of the same year, signaling Hong Kong's intent to become Asia's crypto hub.

In South Korea, the Financial Services Commission had issued warnings against brokering foreign-listed spot Bitcoin ETFs, citing potential violations of local capital market laws, and the need for a domestic spot Bitcoin ETFs was not discussed. However, the country saw a shift in stance from the presidential office. The office hinted at the possibility of approving a local spot Bitcoin ETF.

In the meantime, Singapore and Thailand express disinterest in local spot Bitcoin ETFs, while Taiwan says it will closely follow and analyze the trends in other countries before making a decision about releasing its own crypto ETFs.

The Potential Approval of Spot Ether ETFs

The SEC's recent decision to greenlight spot Bitcoin ETFs from major players like BlackRock, Fidelity, and Invesco has created an unprecedented supply of new products for US investors. The move allows investors direct exposure to Bitcoin through regulated financial instruments, marking a significant milestone in the crypto space.

Now, attention is turning to spot Ether ETFs, with several issuers eagerly awaiting SEC approval. Companies like Ark Invest, 21Shares, VanEck, Grayscale, and BlackRock have filed for spot Ether ETFs. These financial instruments aim to provide investors with direct exposure to Ether, the second-largest cryptocurrency by market capitalization, similar to how spot Bitcoin ETFs work.

The approval of spot Ether ETFs may not be a far-fetched idea, since the SEC has already approved ETFs that hold Ether futures contracts. Moreover, The Commodity Futures Trading Commission (CFTC) considers Ether as a commodity like Bitcoin, and this classification brings a level of regulatory clarity to Ether. Now with the approval of spot Bitcoin ETFs, the vision of a spot Ether ETF in the US is getting more and more attainable.

Disclaimer: The opinions expressed in this article are for informational purposes only. This article does not constitute an endorsement of any of the products and services discussed or investment, financial, or trading advice. Qualified professionals should be consulted prior to making financial decisions.

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