- The SEC has approved the first ETF, which tracks stocks with Bitcoin exposure.
- Bitcoin trading has turned bullish as more whales and institutions are investing in Bitcoin.
- Investors are reconsidering Bitcoin as a hedge against inflation, to the detriment of gold.
Institutional capital is a necessary financial tool to help decrease Bitcoin’s volatility, as increased volume levels out price disparities. Regulated instruments, approved by financial watchdogs, are sought after in order to increase Bitcoin’s vertical adoption at an institutional level. With Bitcoin prolonging its status of hedge against inflation, digital assets are becoming an integral part of investor portfolios.
Are We Ready for a Bitcoin ETF?
Bitcoin ETFs are gaining market exposure. For example, Canada has issued Bitcoin ETFs to incentivize investors to trade Bitcoin stocks safely. Much of the concerns surrounding institutions was the lack of market regulation with regards to funding security. Since launching in February 2021, the first North American ETF, traded on TSX, amassed $421.8 million in assets under management in the first 2 days.
Regardless, the U.S. has been wary of approving crypto ETFs. To date, eight ETF applications have been submitted to the SEC, none of which have gained approval. However, according to Bloomberg senior ETF analyst Eric Balchunas, the first Bitcoin ETF, ProShares, could be approved as early as October 18th.
The Securities and Exchange Commission has also approved the Volt Crypto Industry Revolution and Tech ETF, which tracks listed companies that hold crypto-assets, and was first reported in the New York Times. Thus, the ETF will offer investors exposure to companies such as Tesla, Microstrategy, and Square, which hold Bitcoin in their balance sheets.
On The Flipside
A New Price Rush
Demand for Bitcoin ETFs is continuing to draw attention. However, the SEC’s Gary Gensler noted that ETF allocation is in limbo due to “market manipulation concerns.” Nonetheless, according to Eric Balchunas, futures-backed ETFs are closer to reality than physically-backed ones, which could be further delayed.
Volt Equity’s ETF differs from regular ETFs, as Nate Geraci, co-founder of ETF institute, notes; Volt is a futures-based ETF that doesn’t unlock investor access for physically-backed assets. For example, although Bitcoin ETF access is limited, institutions can still invest in Bitcoin through exchanges, or trust funds such as Grayscale Bitcoin Investment Trust.
Flipping Gold, Again.
Despite the narrative of volatility and illegal activity, institutions still regard Bitcoin as a plausible hedge against inflation. Martha Reyes, head of research at BEQUANT, told Reuters that “banks are capitulating one by one,” indicating that demand for Bitcoin and crypto-assets is surpassing expectations, pushing banks to rethink their financial avenues.
What’s more, JP Morgan highlighted that institutions “appear to be returning to Bitcoin, perhaps seeing it as a better inflation hedge than gold.” Their statement predated whales‘ $1.6 billion BTC purchase, which helped Bitcoin break its previous resistance levels and flip a bearish trend.
What’s certain is that large financial institutions are inspecting Bitcoin and other crypto-assets as potential new financial instruments for the digital generation. For example, the Bank of America’s research finds that digital assets like cryptocurrencies “are too large to ignore,” however, their findings also include stablecoins, as well as the utility tokens that power smart contract platforms.
Why You Should Care?
An ETF is a safeguard that can guarantee more institutional capital flowing into Bitcoin; most data shows that bull runs are due to retail mania, as seen at the end of 2020 and in early 2021. The new ETF does not promise direct exposure to Bitcoin, but it does expand investors’ horizons, setting the scene for a bullish price scenario.