The Impact of Bitcoin ETFs: ‘Revolutionary Change’ or Huge ‘Failure’

Author: Andrew Singer, Cointelegraph; Compiler: Songxue, Golden Finance

After more than a decade of hard work, the crypto world finally got what it wanted: selling and trading on major U.S. stock exchanges Bitcoin — albeit in the form of an exchange-traded fund (ETF).

But be careful what you wish for. As Bitcoin prices dip again, the U.S. Securities and Exchange Commission (SEC) is giving the crypto industry a Christmas gift that’s been 10 years in the making.

Many are predicting something bad like this will happen, and while it may only be a minor issue, it raises questions about the consequences.

Will the U.S. Securities and Exchange Commission’s (SEC) approval of 11 spot Bitcoin ETFs on January 10 have a long-term impact on Bitcoin’s reputation, further proving that cryptocurrencies have entered the economic mainstream?

Can ETFs really bring back customers who were kicked out of the cryptocurrency winter? After the bankruptcies, scandals, and price swings of the past few years, are individual investors ready to get back into Bitcoin?

What if major asset managers like BlackRock and Fidelity launch Bitcoin ETFs and fail to attract customers? What are the chances that the new ETF, which debuted on the New York Stock Exchange, Nasdaq and Cboe on January 11, will fail to attract investors?

Famous?

Regarding the alleged increase in Bitcoin’s reputation, “I believe the SEC’s approval will increase Bitcoin’s reputation,” said John Nahas, senior vice president of business development at Ava Labs.

In Nahas’ view, Bitcoin is already present in the economic mainstream, but the new U.S. exchange-traded funds will “only strengthen the early adopters, further solidify its many supporters, and begin to convert the remaining doubters". Bitcoin will no longer be viewed as a fringe or exotic asset, but accepted by traditional financial practitioners.

Chris Brodersen, managing director of business consulting and accounting firm EisnerAmper, expressed more caution, arguing that the really important things are still to come. He said that the SEC's approval is only "approval of non-securities products" and is not an endorsement. However, he noted that“The result of the approval will be a broader discussion about Bitcoin, its underlying technology, and ultimately its value in a diversified investment portfolio.”

Brodson said the real importance of the increased investment in cryptocurrencies that could come from ETFs is that it has the potential to "act as a catalyst for innovation and adoption." He added:

"Beyond ETFs, the question remains: How will the crypto ecosystem interact with the broader financial ecosystem?"

Co-founder and CEO of HBAR Foundation CEO Shayne Higdon expressed similar sentiments, emphasizing the importance of the underlying technology, which is now being closely watched by the public at large:“While many investors and cryptocurrency advocates view Bitcoin as digital gold , the potential value of blockchain technology is often overlooked.”

At the same time, Bitcoin itself still has a long way to go. "Mass adoption and price appreciation are needed before Bitcoin can achieve this 'precious commodity' status, and true validation will only happen if asset managers, private wealth management advisors and similar entities invest in Bitcoin over the next year," Higdon said.

Will a spot market Bitcoin ETF attract retail investors in any significant way? After the past few years of bankruptcies, scandals, and price volatility following the so-called crypto winter, are individual investors ready to get back into the crypto space?

There is reason to think that last week's events could have an impact at this point. Nahas said the approval of ETFs provides new assurances and security at the government level and at the institutional level, further explaining:

“These [asset management companies] are long-established, entrenched financial institutions with extensive of due diligence. They won’t back any assets unless they’ve been thoroughly vetted and there’s significant demand.”

Established firms like BlackRock and Fidelity are providing in-demand products to small investors. Cryptocurrencies require a level of technology and self-custody expertise that is beyond the capabilities of many average investors.

Nahas said that in general, mass-market consumers are not ready to accept cryptocurrency exchanges or non-custodial wallets.

Regarding the ongoing impact of the so-called "crypto winter" on potential retail investors, Brodson said: "Despite recent volatility challenges due to scandals and bankruptcies caused by matters like Terra, FTX and Celsius, Retail investors continue to show significant interest in the opportunity to own cryptocurrencies."

"Like any other commodity Investment Commodities”

For most consumers, it may be too early to realize the changes that crypto ETFs will bring. Nahas said that individual investors now have the ability to hold BTC (perhaps too early to hold ETH) as well as stocks, bonds and other tradable assets, adding: "Most people don't understand that already How big the barriers are to removing make ETFs as easy a commodity to invest in as anything else."

Others say what retail investors do or don't know may not be the point. Henry Robinson, founder of cryptocurrency mining, infrastructure and technology company Decimal Digital Group, said: “Whether the average person is ready to accept Bitcoin may not matter that much right now because their advisors will take them anyway. Get in."

Robinson said that amid increasing competition to outperform investment benchmarks, "wealth managers will not be able to ignore Bitcoin because they risk losing to their peers." They will " Gotta get some exposure”.

What if no one comes?

But what if a Bitcoin ETF fails to attract retail investors? What happens then?

"The possibility is almost zero," Higdon pointed out. “If there wasn’t significant demand from clients, large asset managers wouldn’t bother applying for and creating ETFs.” These issuers, such as BlackRock, Fidelity, Franklin Templeton and others, simply want to provide their clients with regulated means .

"If ETFs fail, we may see buyers exit the market over the past six months who were looking to buy at high prices," Robinson said.

Bitcoin prices briefly rose before falling after the ETF was approved. Source: Cointelegraph

Cryptocurrency ETFs are really just a temporary solution. “Over time, we expect ETF Bitcoin holdings to peak,” Robinson said.

One of the main advantages of Bitcoin as a store of value is its zero-cost storage, which is not really consistent with ETFs, even though the latest round of ETF issuers are on fees Some discounts were made, at least initially. Robinson said: "The role of ETFs in wider adoption of Bitcoin cannot be underestimated, but they are also temporary."

Broderson added that the notion that "no one will come" is unlikely . "Once the initial excitement wears off, we may witness a relatively slow but gradual increase in interest from retail investors."

Meanwhile,the potential upside is substantial. Even an allocation of 1-2%, if done at scale, Brodson said, "could have a huge impact on the overall market capitalization of the cryptocurrency market." Nahas also believes in the new ETF The issuer has effectively identified customer needs. "BlackRock and their peers wouldn't be in business if they were guessing which assets would or wouldn't be in demand," he said, adding: "Demand comes from clients. That's what's driving this ETF-only momentum. Many of these issuers were originally unwilling to support any digital assets, but now they are issuing Bitcoin ETFs."

Watershed moment?

Will people one day look back on last week's events as a historic milestone in the journey of the world's first and largest cryptocurrency?

Robinson said: "We do believe this is a watershed moment for Bitcoin," although Bitcoin may soon experience a supply shortage, but he added:

“Bitcoin’s withdrawal from the market by ETFs is creating a supply squeeze. New capital will make the industry exponentially more integrated with global finance.”

Of course, measurement Historical "tipping points" can be tricky and are a matter of endless debate. Brodson said:“Bitcoin’s real watershed was the release of its white paper and the mining of the genesis block.” Satoshi Nakamoto’s Bitcoin white paper was released in October 2008, and the first Bitcoin was Mined in January 2009.

"Ultimately, this is a positive step toward increased adoption and investment in the digital asset space," Brodson acknowledged, but mass adoption will require more than just "comprehensive exposure to the price of Bitcoin." mouth".

It also requires a better regulatory framework, as well as a deeper understanding of the costs and benefits of decentralized ledger technology – “and most importantly, the demand for such alternatives.”< /p>

Higdon is even more convinced of the significance of last week's milestone. "We will look back on this day as a catalyst for revolutionary change in the world of finance and banking. While the exact extent of this change is unclear, we cannot overstate the significance of this approval."