With the Bitcoin ETF (exchange-traded fund) a new classic financial product arrived at the finance market. In the beginning of January, the United States Securities and Exchange Commission (SEC) approved eleven applications of ETF products. Now every investor, also institutional or professional investors, are able to invest in Bitcoin without having any contact point with the blockchain.
What makes Bitcoin ETF so special?
Normally, exchange-traded funds show the performance of indices. The Bitcoin ETF constitutes a new kind of exchange-traded funds. Here, one is able to profit from the performance of cryptocurrencies like Bitcoin (BTC). The Spot ETF which was created by the investment company BlackRock makes it possible for vintage money in a traditional finance system to flow into the blockchain. It has neither to be dealt with the blockchain technology nor the custody of token. One reckon with a lot of investments of people who want to diversify their portfolios. If the people only diversify a little amount, this will have a big impact on the price of bitcoin. Indeed, the forecasts are uncertain, but it is possible that bitcoin will reach a price of $100,000 in the middle of the year.
Bitcoin ETF changes the market
A short while ago, bitcoin already increased to $47,000 and afterwards it decreased again because many bitcoin owners decided to vend. Many investors expected a value increase of Bitcoin to $100,000 after the Bitcoin ETF release already. But this wasn’t the case. The reason for that is that people who bought Bitcoin while the all time high had to wait till the prices were high enough again, like it was the case now. So the investors had the opportunity to alight when the Bitcoin ETFs were released and the Bitcoin prices increased again. And a lot of them did. As a result, the prices decreased again.
Furthermore, there are two options how the new ETFs can change the finance market in the future. The first is that Bitcoin ETFs will generate more demand. Especially in the first months when people are diversifying their portfolios or merely invest in an ETF. And the other is that there will be less demand because a lot of investors want to sell again. That would put more Bitcoins in circulation again, what leads to lower prices.
What is necessary to allow them in Europe?
Although a Bitcoin ETF would be possible because of the hype, it is regulatory not. According to the European law of negotiable instruments, one cannot conduct a fund which is investing in only one asset. Also, mutual funds are not allowed to invest in cryptocurrencies directly. So the only ways out would be a change of the law or a similar ETF in which Bitcoin can be combined with other assets. Second is the only way to circumvent the existing law.
All in all, the release of the Bitcoin ETF means a big change for the finance market. Although it is not the case yet, the new financial product will arrange that a lot of money floats into the market soon. And that will lead to higher Bitcoin prices. In combination with the upcoming Halving, it is more likely that the prices will rise in the next months. But it is also possible that the boot will be on the other foot in the second half of this year. Where much is bought, much can be sold as well. So overall, the Bitcoin ETF not only means potential for the market, but also peril.
Author: Maximilian Schmidt is CEO of the CPI Technologies GmbH. The company is specialized in software development in the areas artificial intelligence, blockchain and digital product development. https://cpitech.io/de/