For quite some time, the launch of spot Bitcoin ETFs has been billed as one of the biggest near-term bullish catalysts for the world's premier cryptocurrency. Now, we also have the numbers to back up these claims.
A spot Bitcoin ETF will make it extremely convenient for investors to acquire exposure to Bitcoin without the pitfalls associated with futures-based ETFs, which include roll-over losses in futures contracts that are typically in contango - a common situation where contracts for the months ahead are usually priced at a premium to the spot price, leading to expensive roll-overs as the front-month contract expires and the next one takes its place. Over time, should contango persist, this practice leads to higher costs and ETF underperformance relative to the spot price. Due to this phenomenon, the futures-based Bitcoin investment avenues are not conducive to large-scale institutional adoption.
The SEC, however, has been reluctant to approve spot Bitcoin ETFs. There are signs nonetheless that the prevailing regime is about to change. For instance, while rejecting BlackRock’s spot Bitcoin ETF application a few weeks back, the SEC went a step further and highlighted the precise lacunae that have been hindering the process, including the absence of a “surveillance-sharing agreement” with eligible spot Bitcoin exchanges. This has opened the doors for applicants to remove the highlighted deficiencies and refile their applications.
Additionally, Grayscale recently won a favorable ruling in its lawsuit against the SEC's reluctance to allow the conversion of its Bitcoin Trust to a spot ETF, with the court finding grounds to conclude that the SEC acted in an arbitrary and capricious manner.
How Much Does Bitcoin Stand to Gain from Spot ETFs?
While we've been hearing for quite some time that the launch of spot Bitcoin ETFs is unequivocally bullish for the crypto sector in general, we now have the numbers to back these claims.
3/ However, that sensitivity can vary significantly over time:
Over the past 26 weeks, an increase in $BTC ETP fund flows of 1% in terms of AuM per week was on average associated with a +8.7% weekly change in the price of #Bitcoin pic.twitter.com/96cpjIzc8V
— André Dragosch | Bitcoin & Macro
(@Andre_Dragosch) September 28, 2023
As per the recent tabulation by the head of research at Deutsche Digital Assets, André Dragosch, a 1 percent increase in the Assets Under Management (AUM) of various Bitcoin-related Exchange-Traded Products (ETPs) on a week-to-week basis has pumped up the weekly price of Bitcoin by an average of 8.7 percent.
As per a separate analysis by K33 Research, the launch of spot Bitcoin ETFs could attract around 100,000 BTC in fresh investments within months, corresponding to $2.6 billion in new investment, as per the current prices.
In July 2023, the AUM of Bitcoin-related ETPs was around $9.1 billion, far below the 2021 AUM of $16 billion.
Accordingly, the launch of spot ETFs can increase the AUM of the pertinent ETPs by around 28 percent within months. If the analysis by Dragosch pans out, this will result in a whopping 243 percent increase in Bitcoin's price on a cumulative basis, as per the recent sensitivity metrics, and by 26 percent as per the cryptocurrency's long-term sensitivity to the weekly AUM of ETPs. A 243 percent increase would place Bitcoin's price at $63,180, clearly eclipsing its previous all-time high of around $61,000.
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