What if the Bitcoin ETF fails?

Investor Hope Investors have been waiting for a bitcoin spot ETF for nearly a decade, and now it looks like it's just around the corner.

"The price of bitcoin rose sharply on Monday after rumors spread that BlackRock, the world's largest asset manager, was on the verge of having its application for a bitcoin ETF approved by the U.S. Securities and Exchange Commission.

Analysts and experts in the field say that cryptocurrency ETFs (exchange-traded funds) could be listed in January or earlier. However, it is not entirely certain whether the ETF will be listed, as the U.S. Securities and Exchange Commission has been reluctant to approve the product in the past.

The ETF would track the price of Bitcoin, allowing investors to gain exposure by purchasing shares without having to deal with digital wallets, exchanges or private keys. Since an ETF would remove technical barriers, some analysts and bitcoin evangelists say such a fund could lead to a flood of money into the bitcoin market.

Will an ETF live up to the hype? The answer: not everyone thinks so. JPMorgan researchers noted back in July that products traded on spot cryptocurrency exchanges in Canada and Europe have yet to garner strong investor interest.

Bloomberg Intelligence analyst Eric Balchunas said that "there may be some gap between early hype and actual demand," adding that "when the Bitcoin ETF finally starts trading on stock exchanges, it will perform probably won't be as good. Even though the first futures crypto ETF broke records when it launched two years ago."

Futures cryptocurrency ETFs differ from spot market ETFs in that the shares purchased by investors provide exposure to contacts (rather than the assets themselves) that bet on the future price of the cryptocurrency. Despite years of denying spot market applications, the SEC approved the futures product at the height of the bull market.

"I wouldn't be surprised if the spot market bitcoin ETF lags far behind BITO (ProShares Bitcoin Strategy ETF) on the flow side, since BITO was launched at the peak of the mania," the expert said. "I'm preparing something much milder than BITO, but I think in three, five years it will be very successful."

BITO began trading in October 2021, when Bitcoin was selling for $64,000 each. At the time, there was huge demand for all cryptocurrencies - the product traded $280 million worth of shares in the first 20 minutes. By the close of the first day, nearly $1 billion in shares had changed hands.

But since then, the prices of all digital assets have plummeted, and the industry has been plagued by bankruptcies, hacks and scams that could scare off potential Bitcoin ETF investors, especially those who have already suffered losses.

ETF development still has a long way to go Balchunas added, "The Ether Futures ETF, which launched earlier this month, got off to a slow start." "A lot has happened and a lot of burdens have been placed on it. While Bitcoin is making a comeback this year, I think it's still going to wane."

Adam Guren, co-founder of cryptocurrency hedge fund Hunting Hill Digital, said, "The liquidity constraints of today's exchanges compared to 2021 are also something to consider." He also noted the challenge of "even if the first day's inflows reach $500 million, it's still noteworthy."

Experts note that the SEC currently has a long list of Bitcoin ETF applications to approve. There is speculation that they could all be approved at the same time, which would lead to a fragmentation of interest. But experts agree that approval of such a product would be beneficial to Bitcoin in the long run.

"More and more investors will be more interested in spot products than futures products," said James Seyyfart, an analyst at Bloomberg Information. "On a one-year time horizon, I think spot ETFs will outpace demand for futures ETFs."

Guren added, "The approval of a spot Bitcoin ETF would represent a significant milestone and would pave the way for a more favorable environment for cryptocurrency investment in the United States.