“Bitcoin may rally to $200,000 but that misses the point” – Expert roundup
“Opinion is divided between those who believe that demand for inflows will drive the price to $200,000 within two years due to pent-up demand, and those who believe that all the good news is in the price and that inflows will disappoint and deflate the value of BTC.”
Passive funds in the US mirroring the price of Bitcoin could begin trading as soon as today after the US Securities and Exchange Commission (SEC) approved the first spot Bitcoin exchange-traded funds, with BlackRock, Fidelity, and Invesco among the global players that will offer ETFs to retail investors.
The widely anticipated move is expected to attract a new and wider constituency of investors both institutional and private to the digital currency, as they will now be able to get exposure to Bitcoin without having to opt for futures ETFs with higher fees or to buy through digital exchanges whose credibility and safety have been undermined by a variety of collapses and crises.
We today gather a few expert takes on the matter, with opinions from:
- Michael Walsh, CEO of Ireland at Zodia Markets, the FCA-registered institution-first trading venue and brokerage backed by Standard Chartered;
- Jason Hollands, Managing Director at Bestinvest, a London-based execution-only investment services provider;
- Hector McNeil, Co-Founder and Co-CEO of HANetf, a European independent white-label ETF platform, and
- Ben Weiss, CEO of CoinFlip, the largest network of Bitcoin ATMs by volume in the US.
“BTC ETF market democratizes ownership of BTC”
Michael Walsh, CEO of Ireland and Head of Distribution of Zodia Markets, said: “The SEC’s approval for BTC ETFs in the U.S. is unambiguously good news for investors and asset managers. Opinion is divided between those who believe that demand for inflows will drive the price to $200,000 within two years due to pent-up demand, and those who believe that all the good news is in the price and that inflows will disappoint and deflate the value of BTC.
“However, that misses the point. A highly regulated BTC ETF market democratizes ownership of BTC; buyers of the ETF in any increment have the comfort of knowing that their assets are in the safe hands of household investment managers with simplified access and liquidity.
“Crucially buyers can proceed in confidence that they are greatly insulated from poor governance and, since an ETF reflects the value of the underlying asset, from hacks or other misappropriation of the physical BTC. It is entirely another question whether America’s Moms and Pops should be investing in BTC but there is a strong argument to be made that, at very least as a store of value, BTC has a place in every investment portfolio.”
UK unlikely to have a Bitcoin ETF soon
Jason Hollands, Managing Director at DIY investing platform Bestinvest, warned that Bitcoin enthusiasts among the UK’s estimated nine million self-directed investors might be in for a wait to have the same choice as their US counterparts.
“I am personally doubtful that the UK’s Financial Conduct Authority will authorize Bitcoin or other cryptocurrency ETFs to be made accessible to UK retail investors any time soon. The FCA has repeatedly flagged concerns about the extreme volatility of crypto-assets, the high risk of losses, and the difficulties retail investors face in valuing them.
“For an ETF to be made directly available by a UK regulated investment platform, under a regulation known as PRIIPs (Packaged Retail and Insurance-based Investment Products Regulation) ETF and other fund providers must comply with UK regulatory requirements in terms of producing a Key Information Document, which a US-listed ETF won’t have.
“Even were Bitcoin or cryptocurrency ETFs to become authorized in the UK in the near future, it is possible that these would be primarily accessible for professional investors such as discretionary fund managers or those certified as sophisticated investors.
“This is because of the introduction of the FCA’s Consumer Duty principle, which was a major regulatory development in the financial services sector last year. It aims to increase consumer protection for retail investors and ensure regulated firms are focused on good client outcomes, and as a result execution-only investing platforms have become more cautious about the access they provide to higher risk or more complex products, rather than relying on the caveat emptor (‘buyer beware’) principle which was widely assumed to have prevailed previously.”
“Similar vein to the creation of gold ETCs in the early 2000s”
Hector McNeil, Co-Founder and Co-CEO of HANetf, said: “The much-anticipated approval of a spot price Bitcoin ETF by the US Securities and Exchange Commission is without a doubt one of the major landmark moments since the birth of Bitcoin. As we saw in the run up to the approval, investor excitement about the approval helped push Bitcoin out of its 2022-induced slump, with the price of a coin once more reaching $47,000.
“At the same time, digital asset ETPs available in Europe saw dramatic inflows in 2023. In total, the entire range of cryptocurrency ETCs from ETC Group saw $426million in inflows over the course of the year. Among those, ETC Group Physical Bitcoin (BTCE) saw an AUM increase of 351.12% and ETC Group Physical Ethereum (ZETH) 86.6% in 2023.
“The then-still-anticipated approval by the SEC helped boost the price of Bitcoin for several reasons. The first was the expectation that ETFs will unlock a new wave of investor demand. Many US investors have been reluctant to use typical cryptocurrency trading venues, given some of high-profile scandals in the space. A spot price Bitcoin ETF gives a potentially huge number of US investors with a way to access Bitcoin now directly. The creation of Bitcoin ETCs in Europe, such as BTCE, directed several billions of dollars among European investors. A US Bitcoin ETF has the ability to gather even more investor money looking for spot price exposure to Bitcoin, consider the bigger pool of money among both professional and retail investors in the US compared to Europe.
“We can consider the SEC approval in a similar vein to the creation of gold ETCs in the early 2000s, which both myself and HANetf co-founder Nik Bienkowski had close involvement with. If you read investment literature from before the creation of the first gold ETC, you will see gold often touted as an asset class to consider, adding diversification to a portfolio. But how to gain exposure was always an issue. Investors could opt for exposure to gold miners, but that brought potential equity risk. Or, investors could opt for physical bullion, bringing with it custody risk. Storing gold bars in your garage is not ideal. But, with the creation of the first gold ETC, investors finally had an easy way to invest directly in gold. It is similar for US investors with Bitcoin. Investors have had the option of a futures-based ETF, approved in 2021 – but that added performance drag through roll yield. Or they could use some of the online cryptocurrency trading venues to directly buy bitcoin, with the introduction of a digital-based custody risk. But with the SEC approval, a spot price ETF has become an option.
“But beyond simply unlocking new money for Bitcoin, SEC approval adds a new layer of acceptability to the currency. It is interesting to consider that it was the filing from BlackRock for a Bitcoin ETF that saw optimism around the prospect really pick up. That was because BlackRock is seen as the most mainstream of mainstream asset managers. By filing for a Bitcoin ETF, it showed showed that cryptocurrencies themselves are increasingly being considered a mainstream asset class.
“Of course, the issue remains for UK investors. For several years, investors in Europe have been able to invest in Bitcoin thought ETCs such as BTCE, listed on several European stock exchanges. Now US investors can invest in Bitcoin through an ETF, following the SEC ruling. But the UK’s regulator still blocks UK investor access.
“There are, however, proxy ways to gain exposure to Bitcoin. For example, the ETC Group Digital Assets and Blockchain Equity UCITS ETF (KOIN) offers exposure to companies within the crypto and blockchain ecosystem, whose fortunes are intricately tied to the performance of Bitcoin itself. A key indicator of KOIN’s alignment with Bitcoin is its correlation. In December 2023, KOIN exhibited a correlation of around 0.7 with Bitcoin, highlighting its potential as a proxy for the digital gold. This means that as Bitcoin prices move, so do the fortunes of KOIN, providing investors with a strategic avenue to participate in the crypto market.
“Another option is the Grayscale Future of Finance UCITS ETF (GFOF), which aims to provide exposure to the companies that are, and could be, building the future of finance and digital payment systems. This encompasses everything from payment platforms, to exchanges, to miners, to asset management, and blockchain technology.
“GFOF could be well placed to capture growth in the digital assets space, driven by the potential approval of a US Bitcoin ETF. As digital assets move increasingly into the mainstream, the infrastructure for transactions and asset management will need to expand.”
Interview with Ben Weiss, CEO and Co-Founder of CoinFlip
What does this mean for the crypto space?
This ETF approval didn’t fundamentally change what those in the space have already known for years: bitcoin is here to stay. Whether it’s cross border payments for those left behind by the traditional financial system, or bringing transparency to complex supply chains, crypto and the blockchain will continue to shape our world. I’m glad more investors will now have access to this incredible asset and the technology that underlies it. This is the moment we’ve been waiting for, where cryptocurrencies cement their position as the driving force behind the future of finance.
Why is the ETF anticipation raising the value of crypto?
Anticipation of a bitcoin ETF is pouring rocket fuel into the crypto market because an ETF will attract a whole new wave of investors and is expected to further increase the price, accessibility and demand for bitcoin. Investors who would not want to hold bitcoin themselves or navigate a crypto exchange will now be able to have exposure to it, attracting a fresh surge of capital, liquidity, and increased credibility and recognition.
What do you anticipate happening in the coming days?
An ETF approval opens the floodgates and empowers a new wave of investors, both seasoned and newcomers, to take the leap into digital assets. When there is heightened momentum, people want to move fast.
Following ETF approval, we will likely see a surge of liquidity, price increases, market expansion, and institutional involvement with high-profile leaders such as Goldman Sachs already potentially eyeing its role as an authorized participant for BlackRock and Grayscale pending an approval.