The Bitcoin ETF is Here!... What’s Next?

After dozens of applications, years of petitioning and rejections, and numerous legal battles, the spot Bitcoin ETF applications were finally approved last week. This is a monumental occasion for the blockchain industry and is one of the most significant events in the history of cryptocurrency. Now that we are a week out and the dust has settled, it’s important to understand what comes next. Let’s explore what will happen now that we have a Bitcoin ETF, what to expect going forward, and which cryptocurrencies could be the next to trade on the stock market. 

A Bitcoin spot Exchange-Traded Fund (ETF) is a financial instrument simplifying investing in Bitcoin. It functions by purchasing actual Bitcoin and converting this direct ownership into tradeable shares. These shares are then listed and traded on conventional stock markets. For investors, this translates to the ability to buy and sell shares in the ETF, mirroring the current market value of Bitcoin. This approach offers significant benefits, primarily in terms of convenience and security, compared to the current difficulties in setting up a Coinbase account and becoming educated on the importance of safeguarding private keys. Instead, buyers can invest through an ETF using their standard brokerage accounts like Fidelity or Charles Schwab, while the ETF manages the underlying Bitcoin holdings. This is particularly great for institutions, who previously may not have had the risk tolerance or even capability to get exposure to Bitcoin in their corporate treasury. 

On January 10th, the SEC approved all pending Bitcoin ETF applications, numbering 11 in total and including some of the biggest names in finance, like BlackRock, Fidelity, and VanEck. It would be one thing if only a few crypto-centric companies were offering these products, but the fact that BlackRock, the largest asset manager in the world with over $10 trillion in assets under management, is willing to put its weight and risk its reputation with this product is a staggering and incredibly promising development. Yes, BlackRock may simply be following the hype to release a product they know will do well. At the same time, their name alone helps to legitimize Bitcoin and the idea of cryptocurrencies and digital assets to retail and institutional investors alike. This, alongside massive marketing campaigns, will make Bitcoin a true household name, and not some taboo topic that only gets brought up during price spikes and crashes. There may even be a Super Bowl ad advertising an ETF.

Some were predicting that the ETF release would be a “buy the rumor, sell the news” event, and this seems to be true at first glance. After the ETF release, Bitcoin briefly touched highs above $48,000, before falling back to around $42,000. That being said, Bitcoin’s price has been increasing for the past several months in anticipation of these ETFs, so that small pump does not come close to telling the full story of the ETFs impact.

Now that we can access institutional exposure and various ETFs, there are two paths to consider. First, since this is the first time that the holders of the Grayscale GBTC product can sell their Bitcoin at a proper valuation since it was previously trading at a 10+% discount before being converted to an ETF, they may be quick to take billions in profits and cause a small-scale selloff. Another possibility is that we see a vigorous institutional adoption of Bitcoin on the balance sheets through these ETFs, leading to an increased excitement about digital assets leading directly into the Bitcoin halving, another momentous occasion causing the Bitcoin inflation rate to cut in half. This is expected to occur sometime in April or early May and has been a catalyst for great price action the previous times it has happened every four years. 

With the Bitcoin ETF approved, many are beginning to speculate about what the next cryptocurrency ETF will be. The current most likely pick is Ethereum, as there are several Ethereum ETF applications pending approval with dates ranging from May to BlackRock’s in August. BlackRock’s is particularly important, as they have only ever been denied for one ETF application after submitting over 500. The Ethereum ETF is still far from guaranteed, though, as the SEC has never explicitly stated that Ethereum is a commodity instead of a security - a requirement for the ETFs to be approved in their current form. Other cryptocurrencies are likely at least a year or more away from spot ETFs, if not longer.

Already two weeks into 2024 and the most important event in the cryptocurrency industry may have already happened for the year. The gradual yet steady increase in Bitcoin’s adoption and legitimization, led by established financial institutions and the easy onboarding of new capital, will bring Bitcoin and the blockchain industry closer to its goal of democratizing finance, even if that means by going back to the traditional stock market for the time being.

By Lincoln Murr

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