Few developments in the blockchain industry have taken up more headline space than the recent conversation on bitcoin (BTC) spot and futures ETF applications by the U.S. Securities and Exchange Commission (SEC). The months-long “will-they-won’t-they” plays between SEC head Gary Gensler and some of the world’s most renowned asset management and crypto companies, including BlackRock and Fidelity, cast a shadow of uncertainty over the industry as a whole.
Last week we got our answer.
Despite a few bumps in the road leading up to the announcement, the SEC has officially approved 11 firms to launch spot Bitcoin ETFs, priming the crypto-sphere for an influx of newly minted legitimacy and (hopefully) money from new investment. But will these approvals have the positive impact everyone has been hoping for?
A hard lesson that the crypto industry has had to learn several times over is that not all that glitters is gold. Countless hacks, scams, and devastating exchange meltdowns have proven that flashy projects and feigned trustworthiness don’t always equate to a legitimate foundation underneath. Looks can be deceiving, and for hardline crypto skeptics, these ETF approvals likely won’t do much to convince them otherwise—even with the massive institutional names involved.
With that in mind, the sheer recency of these ETF approvals makes it far too early to tell what the long, and even short-term reverberations will be. There is an enormous potential for positive developments from these ETFs and a rise in sustainable, stabilized crypto adoption and usage. Additionally, the overly-critical eye of the SEC giving the green light for esteemed institutions to offer these services does show a vote of confidence in crypto potential. But only time will tell if these approvals will prove to be a pivotal moment in the history of the crypto industry, for better or worse.
In the meantime, we’ve rounded up a panel of crypto and blockchain experts to share their thoughts on what the potential positive—and negative—impacts could spur from this initial slate of ETF approvals.
We first wanted to understand if there are situations where these high-profile ETF approvals could damage the crypto industry.
“The approval of a Bitcoin ETF could introduce increased market volatility. There’s a risk of a rapid influx of capital leading to inflated prices, which might not be sustainable in the long term,” says Eitan Katz, CEO and Co-Founder of Kima, a settlement protocol bridging blockchain and traditional fintech. “Additionally, the increased visibility and mainstream acceptance could attract more regulatory scrutiny, potentially leading to stricter regulations that might hinder the growth and innovation in the broader crypto industry.”
“With BTC capped at 21M, regulating a derivative market that will take the underlying asset out of circulation may have several negative impacts,” says Goldi Horta, Head of tomiChain, a hyper-scalable, privacy-centered Layer-2 scaling solution. “The worst of them have been discussed extensively before, but in my opinion, they include:
- Limiting the circulating supply will reduce the chances of mass adoption of Bitcoin as a global currency (although this may mean another cryptocurrency might fill that gap).
- Centralizing most Bitcoin in the hands of the same U.S.-based financial institutions that currently control and manage the majority of the world’s assets and uphold the traditional financial paradigm is bound to subdue Bitcoin to the very system it was designed to overcome and make it subject to a form of market manipulation that appears “legit” in the eyes of authorities. I, along with many others, find these to be the biggest threats that the ETF will face Bitcoin with.”
“The convenience of ETFs will unlock new demand, but may delay actual adoption of BTC as sovereign store of value,” says James Wo, Founder and CEO of DFG, a leading investment firm specializing in web3 and blockchain projects. “People need to learn the importance of self-custody, ‘not your keys, not your coins.’ If the majority ends up owning spot ETFs, it might lead to centralization and control in the long run which is against the ethos of Bitcoin.”
Many industry pundits are calling ETF approvals a “sell the news” event considering the massive players involved, and different people might say this anticipation is purely hype-driven.
“Following on the line of thought above, ‘selling the news’ will only put more BTC in the hands of centralized institutions,” adds Goldi Horta. “Anyone who truly understands the value proposition of Bitcoin knows to HODL because the price in dollars is meaningless in the long term.”
Eitan Katz continues: “Historically, financial markets often experience a pattern where anticipation of a major event leads to a run-up in prices, followed by a decline post-event as the news gets priced in. The approval of a Bitcoin ETF could see a similar trend. Initially, there might be a surge in prices due to the excitement and new influx of investors, but this could be followed by a correction as traders sell off to capitalize on the rise.”
Being familiar with this industry’s bullish cycles and its ultra fast turnover, it’s worth considering the short and long-term BTC price impacts we might see from an event on this scale.
“The price impact will be positive in the short and long term,” adds James Wo. “However, we can expect more volatility with sophisticated actors, funds, and quants participating.”
For this question, Goldi Horta offers an extensive analysis: “The ETF is definitely one of the driving factors of the coming bull market, but so is the halving. The institutions that are expected to bring money into BTC’s market cap move very slowly, so if they were buying it directly, we would see a slow and steady rise that would take at least 6-12 Qs. However, the ETF allows investment firms to front-run this input, and exercise a lot of buy pressure around the time of the halving. Add to this Argentina’s new policies on Bitcoin, and any other countries that may adopt similar approaches following El Salvador. This could exercise even more ‘buy’ pressure on the already scarce asset, driving us to new and unexpected ATH.”
“In the short term, we can expect a period of significant volatility following the ETF approval. This would include potential sharp increases in Bitcoin’s price, followed by corrections as the market adjusts,” adds Katz. “In the long term, the introduction of an ETF could lead to greater stability. It’s likely to attract institutional and traditional investors, which could contribute to sustained growth and more mature market behavior.”
So, Will an ETF approval actually drive BTC adoption?
“We need to define what we mean by adoption, because people who hold the ETF in their portfolios might think they’ve adopted Bitcoin,” says Horta. “When in fact we know: not your keys, not your Bitcoin.”
“An ETF can play a crucial role in Bitcoin adoption. It provides a regulated and familiar investment vehicle for traditional investors, making it easier for them to enter the crypto market,” Katz continues “This not only enhances the legitimacy of Bitcoin but also broadens its appeal. By offering a more accessible way to invest in Bitcoin, an ETF could bring a significant new audience into the crypto space, including those from traditional finance sectors.”
Rounding out the predictions, James Wo adds: “ETF approval legitimizes BTC as an asset class which promotes more adoption by improving accessibility and liquidity. This initial recognition by authorities will compel more people to learn and understand BTC as an asset class, which will lead to more actual adoption as a sovereign store of value over time.”
Image by Markus Winkler from Pixabay