29 November 2023

While the cryptocurrency industry may have had a challenging 2022, if you haven’t been watching the crypto space actively over the last few months of this year, you’ve been missing out. The reports of cryptocurrency’s death have been greatly exaggerated.

Bitcoin is up over 100% for the year so far, including a 20% rally in October alone.¹ And despite giving back some recent gains that saw the digital coin hit an 18-month high, Bitcoin is still up more than a third overall since early October, with analysts expecting the momentum fueling these gains to continue.²

Bitcoin remains the non-sovereign reserve currency behind the world of Big Tech.³ And with the anticipation surrounding potential spot Bitcoin ETF approvals by the SEC in the new year growing, Bitcoin and other cryptocurrencies can offer investors a way to affordably diversify their portfolios while effectively managing risk.

Reasons for Bitcoin’s Building Momentum

So why is Bitcoin booming again? It has to do with growing political momentum, increased international adoption, supply and demand issues, and the potential that a spot Bitcoin approval holds for the crypto industry.

Internationally, Argentina’s recent political shift towards libertarian candidate Javier Milei—a move triggered by years of economic challenges, money printing, and corruption—has created an opportunity for Bitcoin in South America’s second-largest economy. Alongside El Salvador’s Nayib Bukele, also a pro-Bitcoin president in Latin America, there is growing political momentum favouring real-world Bitcoin applications.

The real-world use of Bitcoin as a hedge against inflation is evident in countries facing economic turmoil, including Nigeria, Turkey, and Argentina. After the Argentine election results, Bitcoin reached new highs in these inflation-plagued nations, emphasizing its role in preserving value amid financial crises. This aligns with the broader trend of citizens globally turning to Bitcoin due to its inflation-resistant protocol.

And don’t overlook simple supply-and-demand factors in Bitcoin’s resurgence. Market watchers are quick to point out that 88% of the Bitcoin supply hasn’t moved in at least three months, indicating a potential maturation in the sector and a shift towards a long-term investment mindset. As the fixed supply of Bitcoin intersects with rising demand, further price rallies are anticipated.⁴

But perhaps the most significant factor in the good times for Bitcoin is the anticipated approval of a spot Bitcoin ETF by the U.S. Securities and Exchange Commission that experts believe is in the cards for early 2024.⁵ With major players like Fidelity and BlackRock applying, a spot Bitcoin approval is expected to drive institutional and retail demand for access to crypto.⁶

What Would a Spot Bitcoin ETF Approval Mean for the Industry?

The main significance of the launch of a spot Bitcoin ETF in the U.S. would be the accessibility it offers to investors.

Some analysts have likened a spot Bitcoin approval to the transformative impact seen with the introduction of the first spot ETFs for gold, which caused trading volumes to “increase by orders of magnitude.”⁷ Some investors believe that, under the right conditions, something similar could happen with Bitcoin, and anticipate a rally in the digital currency’s price upon approval.⁸

Galaxy Digital Head of Firmwide Research Alex Thorn speculated that with a spot Bitcoin ETF approval, he could envision a fund seeing a $14.4 billion minimum in year one, escalating to $38.6 billion by year three, potentially triggering a 75% BTC/USD appreciation post-approval.⁹

The creation of a spot Bitcoin ETF is anticipated to reshape trading dynamics and catalyze a complex value chain. Gordon Grant, a cryptocurrency derivatives trader, envisions the approval of a spot Bitcoin ETF creating multiple layers of financial activity, including options, futures, and volatility trading, forming an intricate value chain.¹⁰

Moreover, a spot Bitcoin ETF would simplify institutional access to Bitcoin, eliminating the need for intricate key or seed phrase management and thus be more cost-effective for investors to add to their portfolio.¹¹ And it is this institutional access—and the legitimacy it would lend to Bitcoin, specifically, and cryptocurrency more generally—that is perhaps the most valuable intangible that would result from a spot Bitcoin ETF approval.

Legitimacy and Investor Confidence

Research by the Digital Asset Council of Financial Professionals on cryptocurrency shows that only about 12% of financial advisors currently recommend Bitcoin to their clients as part of a balanced portfolio. However, the same study showed that 77% of financial advisors planned to recommend Bitcoin to their clients upon the approval of a U.S. spot Bitcoin ETF.¹²

This dramatic swing in favour of Bitcoin investment is what the legitimacy of a U.S. spot Bitcoin ETF would mean for the crypto space. Beyond simple recognition and legitimacy, spot Bitcoin approval would mean an elimination of the regulatory uncertainty that has held many investors back from moving into crypto. Approval by the SEC would signal to both investors and institutions that investing in Bitcoin came with a solid oversight regime and investor protections and that any fears of the “Wild West” associated with crypto are behind us.¹³

And while there are no guarantees with Bitcoin investing, the promise and appeal of an SEC-approved U.S. spot Bitcoin ETF is self-evident. So, when could investors expect such approval to come? Well, Bloomberg is estimating approval this year at 75%, but other industry analysts estimate approval by early January 2024 to be 90%.^{14 15}

Whenever SEC approval finally comes, U.S. spot Bitcoin ETFs will represent a transformative moment for Bitcoin and cryptocurrency investing.

Investing in Cryptocurrency with ETFs

Deciding which cryptocurrency to own and how much to allocate can be daunting for many investors.

Evolve’s Bitcoin ETF (EBIT ETF) is one of the world’s first Bitcoin ETFs and provides investors with a simple and efficient way to access the price of physical Bitcoin through a secure investment solution. For more information on this fund, visit https://evolveetfs.com/ebit/.

Evolve’s Ether ETF (ETHR ETF) is the world’s first Ether ETF and offers a great way for investors to access the price of Ether through a secure investment solution. For more information on this fund, visit https://evolveetfs.com/ethr/.

For a more diversified cryptocurrency investment solution, the Evolve Cryptocurrencies ETF (ETC ETF) is Canada’s first multi-crypto ETF. ETC ETF is designed to be a one ticket solution to cryptocurrency exposure. It is market cap weighted and rebalanced monthly. It currently holds Bitcoin (TSX: EBIT) and Ether (TSX: ETHR) but as regulators approve other crypto ETFs, they may be added as well. For more information on this fund, visit https://evolveetfs.com/etc/.

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Sources

1. Byrne, M., “What Would a Spot Bitcoin ETF Approval Mean for Investors?,” Nasdaq, October 24, 2023; https://www.nasdaq.com/articles/what-would-a-spot-Bitcoin-etf-approval-mean-for-investors
2. Denton, J., “Bitcoin Slips Back as 18-Month High Proves Hard to Hold. Where Prices Go Next,” Barrons, November 27, 2023; https://www.barrons.com/articles/Bitcoin-price-crypto-trading-204d261e
3. Kunke, M. & Rudick, B., “Sizing the Massive Spot Bitcoin ETF Opportunity,” CoinDesk, November 6, 2023; https://www.coindesk.com/consensus-magazine/2023/11/06/sizing-the-massive-spot-Bitcoin-etf-opportunity/
4. Rocco, A., “3 Reasons Bitcoin’s Momentum is Just Beginning,” Yahoo Finance, November 20, 2023; https://finance.yahoo.com/news/3-reasons-Bitcoins-momentum-just-165500261.html
5. Dore, K., “Spot Bitcoin ETF approval by the SEC is approaching, experts say. What that means for investors,” CNBC, November 13, 2023; https://www.cnbc.com/2023/11/13/spot-Bitcoin-etf-approval-is-approaching-experts-say-what-to-know.html
6. Light, J., “Bitcoin ETF Push Portends Institutions Flocking to Crypto,” Barron’s, June 26, 2023; https://www.barrons.com/articles/Bitcoin-etf-sec-institutions-crypto-d7f335d9
7. McGleenon, B., “What would a spot Bitcoin ETF approval mean for the industry?,” The Block, October 26, 2023; https://www.theblock.co/post/259587/what-would-a-spot-Bitcoin-etf-approval-mean-for-the-industry
8. Dore, K., “Spot Bitcoin ETF approval by the SEC is approaching, experts say. What that means for investors,” CNBC, November 13, 2023; https://www.cnbc.com/2023/11/13/spot-Bitcoin-etf-approval-is-approaching-experts-say-what-to-know.html
9. McGleenon, B., “What would a spot Bitcoin ETF approval mean for the industry?,” The Block, October 26, 2023; https://www.theblock.co/post/259587/what-would-a-spot-Bitcoin-etf-approval-mean-for-the-industry
10. Ibid.
11. Byrne, M., “What Would a Spot Bitcoin ETF Approval Mean for Investors?,” Nasdaq, October 24, 2023; https://www.nasdaq.com/articles/what-would-a-spot-Bitcoin-etf-approval-mean-for-investors
12. Kunke, M. & Rudick, B., “Sizing the Massive Spot Bitcoin ETF Opportunity,” CoinDesk, November 6, 2023; https://www.coindesk.com/consensus-magazine/2023/11/06/sizing-the-massive-spot-Bitcoin-etf-opportunity/
13. Ibid
14. Hunt, J., “Bloomberg analysts estimate 75% chance of a spot bitcoin ETF in 2023,” The Block, August 30, 2023; https://www.theblock.co/post/248122/bloomberg-analysts-estimate-75-per-cent-chance-spot-bitcoin-etf-2023
15. Kunke, M. & Rudick, B., “Sizing the Massive Spot Bitcoin ETF Opportunity,” CoinDesk, November 6, 2023; https://www.coindesk.com/consensus-magazine/2023/11/06/sizing-the-massive-spot-Bitcoin-etf-opportunity/

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