Now We Have Spot BTC ETFs — What’s Next?

It has been a long time coming. A decade after crypto exchange Gemini co-founders Cameron and Tyler Winklevoss filed the first application to create a spot Bitcoin (BTC) exchange traded fund (ETF) in July 2013, the coveted instrument was finally approved by the Securities and Exchange Commission (SEC) on January 10, 2024.

The spot BTC ETF approval marks a watershed moment for the crypto industry, which has been vying for legitimacy for years. Bitcoin finally received the stamp of approval from the US market watchdog after multiple rejections, false announcements, and courtroom battles.

Why is this such significant news for the crypto industry? Where is the crypto market heading after this historic BTC ETF approval news? We will answer these questions and more in this article.

Why is Bitcoin ETF Approval Significant?

Let’s break this section down to fully grasp the significance of the BTC ETF approval news. Here is the reason why this is a historic event for cryptocurrencies.

1. Adds Legitimacy to Mass Adoption

The last decade for the crypto industry was about developing technology that resonated with early adopters. The two biggest cryptocurrency networks, Bitcoin and Ethereum (ETH), did just that by creating peer-to-peer payment ecosystems that championed decentralization, privacy, and permissionlessness.

The next decade for the crypto sector will be about achieving global mass adoption. The first and most important step to achieving this goal is for the crypto industry to gain legitimacy and trust.

The arrival of Bitcoin ETFs does just that. Bitcoin ETFs will provide investors a safe and compliant way to gain Bitcoin exposure. 

2. Easy, Convenient and Secure

Poor user experience is one of crypto’s biggest weaknesses. With ETFs, gaining exposure to Bitcoin will become as easy as buying stocks on your existing brokerage app with your debit/credit card.

Now, investors will not have to worry about creating and maintaining Bitcoin wallets. More importantly, Bitcoin ETFs will make Bitcoin investing hack-proof and extremely secure.

Centralized crypto exchanges do provide convenience compared to buying tokens on decentralized exchanges. However, bankruptcy, fraudulent activities, and hacks at popular centralized exchanges like FTX made crypto investing very risky.

3. Institutional Investor Interest

Most institutional investors kept their distance from cryptocurrency markets due to crypto’s reputation as a risky, volatile, and non-compliant asset. Now that the US SEC has given the go-ahead to Bitcoin ETFs, more institutional investors are expected to warm up to the idea of investing in Bitcoin.

Crypto asset manager Galaxy Digital Holdings expects the US wealth management industry to channel at least $14 billion into Bitcoin ETFs in the first year of its launch, on assumptions that “BTC is adopted by 10% of total available assets in each wealth channel with an average allocation of 1%.”

4. Chance of More Spot Crypto ETFs

Now that we have several spot Bitcoin ETFs listed in the market, crypto enthusiasts will be hoping to see a variety of spot crypto ETFs approved.

Crypto asset managers have been pushing for a spot ETH ETF for some time now. Galaxy Digital Holdings has been selling funds that invest in decentralized finance (DeFi) platforms and other blockchain protocols other than Bitcoin and Ethereum for many years.

Could we see exotic crypto ETFs that give exposure to blockchain gaming, decentralized physical infrastructure networks (DePIN), real-world asset tokenization platforms, and blockchain oracles?

It will take time, but market regulators may see reason to approve crypto instruments that operate under their supervision and protection as investors continue to buy cryptocurrencies on non-compliant exchanges and peer-to-peer platforms.

Where is the Crypto Market Heading after the Bitcoin ETF Approval?

Next, we talk about where the crypto market is headed following the approval of the first spot Bitcoin ETF:

1. Muted Near-term Price Movement

Bitcoin and altcoin prices have been surging for months in the lead-up to the ETF approval news.

Now that the climax is over, we may see subdued movement in Bitcoin prices in the near term. Stock markets tend to behave similarly, where investors “buy the rumor and sell the news” in order to profit from positive market sentiment.

On the day of the BTC ETF approval announcement, BTC prices inched just over 1%. Major altcoins, except ETH (more on that later), showcased muted price movement, indicating the exhaustion of a major market catalyst.

2. Positive Long-term Outlook

Over the longer term, BTC prices are expected to benefit from pent-up demand for Bitcoin. According to a survey of professional financial advisors by Bitwise and VettaFi Advisor, 88% of respondents said they were interested in purchasing a spot Bitcoin ETF once approved.

The US-listed BTC ETFs saw $4.3 billion in market volume on its debut to underscore the strong demand for the instrument. As more institutional and retail investors prepare to diversify their portfolios by buying BTC ETFs, we can expect this strong demand to support Bitcoin prices in the long term.

3. ETH Expected to Outperform

The approval of BTC ETFs was a big boost to the chances of ETH ETFs being approved next. Although the US SEC explicitly disapproved of cryptocurrencies by saying that “we did not approve or endorse Bitcoin”, the crypto market did not care and sent ETH prices flying by over 10% on January 10, 2024.

Out of all the altcoins in the market, ETH has the best chance of getting a spot ETF approved by the US SEC. Firstly, several market regulators, including the Commodities and Futures Trading Commission (CFTC) chairman Rostin Behnam, have called ETH a commodity, not a security (like Bitcoin). Secondly, the SEC has already approved an ETH futures ETF. Lastly, more professional fund managers, including Cathie Wood’s Ark Invest, have begun lobbying for the approval of ETH ETFs.

ETH prices have underperformed BTC prices in the last six months, as of January 12, 2024. We could see ETH prices cover lost ground with the help of spot ETH ETF tailwinds.

4. Spot Bitcoin ETFs to List Elsewhere?

The US SEC’s approval of spot bitcoin ETFs could have far-reaching effects, given its influence and reach in the global financial system. So could we see these crypto ETFs listed in more regions around the world?

So far the reactions from Asia are not positive. In South Korea, authorities warned local brokerages that facilitating transactions for foreign spot bitcoin ETFs could violate capital market regulations.

However, a week after the ETF launch, the Office of the President of the Republic of Korea opened the door to the possibility.

Director of the Presidential Office’s Policy Office Seong Tae-yoon said (translated from Korean): “We are trying to make appropriate changes in our country’s legal system or consider whether what happens abroad can be accepted in our country.”

The President’s Office reportedly stated: “We have told the Financial Services Commission, the responsible ministry, not to have a specific direction of ‘yes or no’.”

Down under, Australian investors have had a spot bitcoin ETF and a spot Ethereum ETF available for investments since 2022.

Meanwhile, Singapore’s central bank Monetary Authority of Singapore (MAS) said that spot bitcoin ETFs are not approved for retail investors in the city-state.

The Bottom Line

The resilience of the crypto industry was rewarded with the approval of the spot BTC ETF.

Now, investors will benefit from this safe and convenient instrument, which could force market regulators, including the US SEC, to rethink their anti-crypto stance.

By recognizing and legitimizing cryptocurrencies, market regulators have the opportunity to protect investors and prevent terrorist funding and crypto scams while fostering technological advancements in the crypto and blockchain industry.