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Published On: Tue, Apr 2nd, 2024

The Impact of Bitcoin Spot ETF on the Markets

By Evander Smart, Founder — Bitcoin University 

Photo/Pete Linforth

It seems as if what some consider the “21st Century’s Greatest Invention” may finally get the mainstream attention it deserves. In a watershed moment for Bitcoin, the US Securities and Exchange Commission (SEC) approved the very first US-listed exchange-traded funds (ETFs) to track Bitcoin in early January 2024. 

Eleven applications were initially approved, including from notable names such as Blackrock, Fidelity, and VanEck. The approval set off a firestorm of trading and competition for market share, with $4.6 billion traded in the immediate wake of the announcement and a foreshadowing of some significant changes coming on the heels of this historic approval. 

The impact of the Bitcoin Spot ETF approval cannot be overstated, especially after several years of headline-making controversies in the overall cryptocurrency space. The failure of such noted cryptocurrency exchanges as FTX has led some to call the market too risky for traditional investors. Securing the stamp of approval from the SEC has allowed Bitcoin to move into the realm of traditional investing and capitalize on a year that saw Bitcoin up by nearly 160%.

Maximized market value 

The effects of the Bitcoin spot ETF approval are set to be nothing less than monumental for the markets. The amount of possible investment value today dwarfs anything we have seen before — even that of the initial investments following the discovery of Bitcoin in 2013. 

The large influx of investments from Wall Street will likely continue indefinitely as investors realize the value that Bitcoin brings to their coffers. The end byproduct of such mainstream adoption will be a Bitcoin “Supercycle.”

A Bitcoin Supercycle occurs when the typical market corrections that happen every four years in the Bitcoin space will end due to supply and demand economics. By the end of 2025, we will see Bitcoin supply at an all-time low, which is when a typical full-scale Bitcoin market correction would occur. With high demand and low supply, a prolonged bear market will not be able to form again. 

The SEC approval has pushed Bitcoin into mainstream investment asset classes, like gold or silver. However, unlike its mainstream counterparts, Bitcoin offers unprecedented scarcity, which maximizes its market value.

Bringing in new investors 

In the past, traditional investors have had a shaky relationship with cryptocurrency and Bitcoin, at best. While some less risk-averse investors have been willing to dip their toes into the murky crypto waters, others have felt the risks outweigh the potential rewards. 

With the BTC ETF approval, the doors have been opened for traditional investors to try Bitcoin investing with the added protection of government validation. This could be enough to open the floodgates to a whole new generation of investors.

In addition, institutional investors will feel more comfortable with Bitcoin investments. In the past, strong regulatory restraints kept institutional investors away from Bitcoin, but now, retail investors are ushering in increased liquidity, stability, and legitimacy to the crypto space.

Investor confidence has been buoyed by the increased validity given to Bitcoin. Over time, investors will see a more stable valuation emerge for Bitcoin, supporting confident investing even more. One of the main aspects of the cryptocurrency market, Bitcoin included, that keeps investors at arm’s length is the noted volatility within the market. This historic approval stands to calm some of that volatility, allowing people to step back into the market with a positive outlook. 

The BTC ETF approval also increases regulation, a welcomed change for many investors wary following the collapse of such powerhouses as FTX. ETFs are subject to regulatory oversight and beholden to market regulations, adding a level of protection to investors against fraud, market manipulation, and other activities that, until recently, kept many investors away from Bitcoin investment and the crypto market as a whole.

Probably most exciting for the market and investors is the chance to further diversify portfolios with this new BTC ETF approval. For investors who wouldn’t have considered Bitcoin in the past, Bitcoin entering this ETF approval era may be the push they need to make it part of their portfolios. 

Further investment diversification through Bitcoin adoption

The most significant change we will see from the BTC ETF approval is the mainstream adoption of Bitcoin and other cryptocurrencies. The embrace of Bitcoin by more traditional investors and financial institutions has already begun, and with the “Supercycle” prediction, more people will likely jump into the market. Yes, risks still exist within the market, but with the lines further blurring between the cryptocurrency market and the conventional finance market, mainstream adoption will make those risks far more manageable. 

The impact of the BTC ETF approval will likely be one of the most significant milestones in the history of finance. The impact spans various facets, from increased accessibility and legitimacy for retail and institutional investors to heightened market liquidity and potential price stabilization for Bitcoin. While challenges and risks may persist, this broader shift toward recognition and acceptance is ushering in a new age for Bitcoin, cryptocurrency, and the financial market overall.

Author: Rohan Singh

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