A spot Bitcoin ETF is an exchange-traded fund that tracks the price of Bitcoin directly, by holding the cryptocurrency in custody. This is different from a futures-based Bitcoin ETF, which tracks the price of Bitcoin futures contracts traded on regulated exchanges.
A spot Bitcoin ETF is considered more attractive for investors who want to gain exposure to the actual price of Bitcoin, without having to deal with the complexities and risks of buying, storing, and securing the cryptocurrency themselves. A spot Bitcoin ETF would also have lower fees and better liquidity than a futures-based Bitcoin ETF, which suffers from the effects of contango and backwardation.
The US Securities and Exchange Commission (SEC) has been reluctant to approve a spot Bitcoin ETF, citing concerns over market manipulation, fraud, and investor protection. However, the regulator has recently signaled a more positive attitude towards the innovation, as it has approved several futures-based Bitcoin ETFs in the past few months.
According to Reuters, the SEC could approve a spot Bitcoin ETF as soon as Tuesday this week, based on insider information. This would be a historic moment for the crypto industry, as it would open the door for more institutional and retail investors to access the Bitcoin market.
How Would a Spot Bitcoin ETF Affect the Bitcoin Price?
Analysts have different opinions on how a spot Bitcoin ETF approval would affect the Bitcoin price in the short and long term. Some believe that the approval is not fully priced in yet, and that the Bitcoin price could surge by 20% or more in a single day, as it did in October 2023 when the first futures-based Bitcoin ETF was launched. Others think that the approval has been anticipated for a long time, and that the Bitcoin price could disappoint the traders who are expecting a massive rally.
Gabor Gurbacs, the director of digital assets strategy at VanEck, one of the spot Bitcoin ETF applicants, said that people tend to overestimate the initial impact of spot Bitcoin ETFs, and that he expects a few hundred million dollars of inflows in the short term. However, he also said that people tend to underestimate the long-term impact of spot Bitcoin ETFs, and that they could have a significant effect on the adoption and growth of the Bitcoin market.
James Seyffart, an ETF analyst at Bloomberg, agreed with Gurbacs, and said that people are focused on a massive short-term impact that could be a let down, while not fully appreciating the potential longer-term impacts. He said that a spot Bitcoin ETF approval would be a positive sign for the crypto industry, as it would show that the SEC is willing to embrace innovation and regulate the market in a fair and transparent way.
What is the Current State of the Bitcoin Market?
The Bitcoin price is currently trading at $42,376 on Binance, at the time of writing. The largest cryptocurrency by market capitalization has sustained above $42,000 in 2024, despite the bearish signals in on-chain metrics such as the network realized profit/loss and the rising Bitcoin supply on exchanges.
The network realized profit/loss shows the difference between the price at which coins last moved and the price at which they moved again. It indicates the level of profit-taking or loss-realization by Bitcoin holders. There have been large spikes in this metric between October and December 31, 2023, suggesting that many Bitcoin holders have sold their coins at a profit.
The Bitcoin supply on exchanges shows the amount of Bitcoin that is available for trading on exchange platforms. It reflects the level of selling pressure or liquidity in the market. The Bitcoin supply on exchanges has increased between December 27 and 31, 2023, indicating that more Bitcoin holders have moved their coins to exchanges, possibly to sell them.
Despite these bearish indicators, Bitcoin has held steady above $42,000 on January 1, 2024, showing resilience and strength in the face of selling pressure. Bitcoin has also outperformed most of the altcoins in the past week, as it has gained 8.5% while the total crypto market capitalization has dropped by 3.4%.