In the cryptocurrency community, there’s a buzz in the air – a sense of anticipation, like waiting for a long-anticipated movie to hit the screens. The cause of this excitement? The impending decision on the approval of the first spot Bitcoin ETF in the United States. But as the clock ticks down, questions loom: Will this be a groundbreaking moment for the market, or will it leave investors with shattered expectations?
High Hopes and Elevated Risks
As the approval date draws near, there’s a palpable sense of enthusiasm in the crypto community. However, it’s worth noting that this fervor may have driven Bitcoin’s price to lofty heights, creating a situation where a “sell-the-news” outcome becomes increasingly plausible.
CryptoQuant, a respected data provider in the crypto sphere, points to a key factor behind this caution – substantial unrealized profits held by investors. History has shown that such circumstances often precede market corrections. In this scenario, Bitcoin’s price could potentially dip to $32,000, aligning with the short-term holder realized price.
Julio Moreno, CryptoQuant’s Head of Research, emphasizes the significance of these unrealized profits: “A lot of unrealized profits have been building up because of the price rally in anticipation of the ETF approval, and now those unrealized profits are at extremely high levels for short-term holders and also for miners. Because there is so much unrealized profit, we argue that, once the news of ETF approval is confirmed, market participants would want to realize those profits by selling Bitcoin.”
The Bitcoin ETF Enigma
The second half of the year has been dominated by discussions surrounding the Bitcoin ETF. As the Securities and Exchange Commission (SEC) engaged more actively with potential ETF issuers, optimism began to surge, pushing the price of Bitcoin up by a significant 11% in December. The implications of this approval cannot be overstated; it could pave the way for the launch of the first-ever spot Bitcoin ETFs in the United States.
Many experts believe this development could usher in a wave of new investors into the crypto market. While there’s a possibility of the SEC rejecting the proposal, the consensus view is that approval is more likely than not.
A Sell-the-News Scenario or a Steady Rise?
Despite the expectations of a short-term dip in Bitcoin prices following ETF approval, some experts don’t foresee a significant “sell-the-news” scenario. Mark Connors, head of research at 3iQ, which launched a spot Bitcoin ETF in Canada in 2021, suggests that while some selling may occur, many investors view this as a long-term opportunity rather than a short-term trade.
Connors predicts that if a U.S. Bitcoin ETF receives the green light, Bitcoin could trade within a range of $45,000 to $55,000 on the day. Although there may be fluctuations, the overall trajectory seems positive. He even envisions Bitcoin reaching $100,000 by the end of 2024.
Ric Edelman, founder of the Digital Asset Council of Financial Professionals, acknowledges that the initial approval may not trigger a dramatic price surge. However, he emphasizes that the approval itself will open the door for institutions to enter the market gradually, which could have a significant impact on Bitcoin’s price over time.
A Gradual Flow of Institutional Money
Institutional inflows into Bitcoin ETFs may not happen all at once. Rather than a rush on day one, new flows of capital may take place gradually over time. This gradual trend could be misconstrued as a lack of appetite for ETFs.
Some on Wall Street are cautioning that expectations for institutional adoption might be overinflated. Owen Lau, an analyst at Oppenheimer, suggests that it takes time for institutions to fully understand the advantages of holding Bitcoin. He anticipates a steady increase in institutional interest rather than an immediate flood of capital.
Galaxy Digital, a company awaiting SEC approval for a spot Bitcoin ETF in partnership with Invesco, estimates a substantial addressable market size for a U.S. Bitcoin ETF. They project it could reach approximately $14 trillion in the first year, expanding to $26 trillion in the second year and $39 trillion in the third year.
So, as the countdown to the Bitcoin ETF decision continues, the crypto community remains on the edge of their seats. The potential approval of a spot Bitcoin ETF promises both short-term excitement and long-term transformation. While the immediate aftermath may not deliver the price fireworks some expect, the gradual embrace of Bitcoin by institutions could be the real market shaker in the years to come.
