Spot Bitcoin ETFs Can Reach 10% Of BTC Market Cap In 2-3 Years If Approved: Report

The probability of a spot Bitcoin exchange-traded fund (ETF) has increased, according to a research report from Sanford C. Bernstein. The report also projected that the market for BTC ETFs could comprise 10% of the crypto assets' market capitalization within two to three years.

Bernstein, a brokerage firm, emphasized the potential impact of spot Bitcoin ETFs on the market in the event of approval by the U.S. Securities and Exchange Commission (SEC) for applications from traditional financial giants.

According to the report, ETFs will not only boost demand in the spot market but also facilitate regulatory approval.

"With leading global asset managers showing interest in bitcoin (BTC) spot ETFs and potential strategies to address objections from the U.S. Securities and Exchange Commission (SEC), the likelihood of approval has risen," said Bernstein analysts, led by Gautam Chhugani.

Furthermore, the report highlighted the potential for the spot Bitcoin ETF market to account for 10% of BTC's market capitalization, which currently stands at $573.88 billion, within two to three years.

Chuggani also noted in the report that approval could act as a "growth flywheel" not only for retail investors but also for larger institutions. This comes amid regulatory uncertainties in the U.S. cryptocurrency industry, fostering a sense of legitimacy.

The report followed the SEC's announcement of a delay in its decision on the ARK 21Shares Bitcoin ETF application and ongoing evaluations of applications from traditional financial giants like BlackRock.

On Aug. 11, he SEC initiated a 21-day public comment period for the ARK 21Shares Bitcoin ETF application, saying, "The Commission is publishing this notice and order to solicit comments on the proposed rule change, as modified by Amendment No. 3, from interested persons and to institute proceedings pursuant to Section 19(b)(2)(B) of the Act6 to determine whether to approve or disapprove the proposed rule change, as modified by Amendment No. 3."

Ruslan Lienkha, Chief of Markets at Web3 crypto and fiat service provider YouHodler, discussed the impact of ETFs on Bitcoin's price in an email with International Business Times. He explained, "ETFs won't directly impact overall liquidity in the crypto market as the new liquidity will be locked into Bitcoin. However, there could be indirect effects, such as increased popularization and attention towards digital assets. Approval of a Bitcoin ETF might lead to more cryptocurrency ETF filings."

Lienkha, with extensive experience in trading desks at brokerage firms and investment companies, also highlighted the strengths of crypto ETFs. He said, "Crypto ETFs offer ease of investing and improved security. The crypto market is unfamiliar to many investors, partly due to the lack of crypto-related services from traditional brokers and investment firms. ETFs provide an opportunity to invest in Bitcoin with greater confidence, as investors won't need to delve into technical details and risk analysis on their own."

Lienkha also discussed a major concern of major Wall Street regulators regarding spot Bitcoin ETFs, particularly "potential market manipulation by a large entity." He noted that if the SEC approves ETFs from multiple investment funds, the likelihood of manipulation would decrease due to frequent trading between these firms.

For Jeff Mei, COO of digital asset exchange BTSE, the recent surge in spot BTC ETF applications indicates growing investor interest in the digital asset class. This suggests positive sentiment within the Traditional Finance (TradFi) space towards the broader crypto market beyond just BTC. Mei expressed optimism that these applications could lead TradFi to embrace the crypto scene while adhering to regulations.

He also mentioned that the SEC's review of these applications could take several months and pointed out that Volatility Shares, the firm behind one of the ETF applications, successfully launched the first leveraged bitcoin futures ETF in the U.S., setting a precedent.

As of 2:00 p.m. ET on Monday, Bitcoin, the world's largest crypto asset by market capitalization, was trading at $29,428.95, in the green zone. The 24-hour trading volume had surged by 105.85% to $13.27 billion, signifying a 0.07% increase in the last 24 hours and a 2.19% gain over the past seven days.

Based on the latest data from CoinMarketCap, BTC's total circulating supply stood at 19.46 million BTC, with its value up by 0.47% and a market cap of $571.29 billion.

(Corrected at 23:25 p.m. on Aug. 14, 2023: The headline of this story was corrected to more accurately reflect the reporting.)