Bitcoin ETF: Will the BTC price rise?
Note from Bitcoin News.oneThis is an "op-ed" article, which uses a combination of factual information and well-founded opinions. We examine a variety of factors that could affect the Bitcoin market once an ETF is approved.
Speculation reported that the Bitcoin ETF was approved on August 16, 2018, and SEC approval is expected to trigger one of the largest Bitcoin bull runs ever.
News publications and social media are speculating about an upcoming decision: - The Bitcoin-ETF approval, which offers investors a dramatically easier way to get exposure to Bitcoin.
What is an ETF?
ETF is the abbreviation for an "Exchange Traded Fund". These financial products track the performance of commodities, indices or assets.ETFs are traded like shares and prices fluctuate throughout the trading day.
As regards Bitcoin, ETFs essentially offer an easy way to build up exposure to Bitcoin. They also have the added benefit that the owner does not have to worry about storage or safety of Bitcoin. Instead, this is the responsibility of the ETF provider.
- Regulatory authority: SEC (USA)
- Request made by: CBOE Global Markets
- Standards: The ETF proposed to hold 25 bitcoins per share. Partial shares cannot be held in an ETF, which means that the minimum investment would be around €185,000 at Bitcoin prices of €8.4,000. This means that the ETF is designed for use by institutions and high net worth individuals. It also makes reasonable provision for the protection of average retail investors.
- Insurance: The offer includes reserves for USD 25 million in primary coverage and additional coverage of up to USD 100 million. Provision may be made for further extensions of coverage.
- Support: The ETF is widely supported by the crypto-currency community and 250 comments (mostly in support of approval) have been posted on the official SEC website.
- Supported by Bitcoin: The proposed ETF should be supported by Bitcoin. This means that, with an inflow of USD 100 billion, USD 100 billion of Bitcoin will have to be purchased to fully support the ETF.
The path to a Bitcoin ETF is long and arduous. Indeed, the famous Winklevoss twins proposed a Bitcoin Trust, which looked like an ETF as early as 2013. Over the past five years, numerous attempts have been made to approve a Bitcoin ETF, all of which have failed. So why are people now so optimistic that the Bitcoin ETF will be approved?
Most speculators believe that the latest ETF application is approved because of the structure of the ETF. Average retail investors do not have €185,000 to invest inBitcoin. This means that the main concern of the SEC (protection against small investors) is fulfilled.
Both speculators and the CBOE have concluded that the latest proposal meets all the ETF registration requirements of the SECer. This, coupled with a mature crypto-currency market, has led to widespread optimism regarding the ETF's approval.
Would a Bitcoin ETF drive the price higher?
It is no secret that many financial institutions and high net worth individuals are interested in investing in crypto currencies.
Financial giants with trillions of customer funds under management such as Blackrock, J.P.Morgan and Fidelity have all expressed interest in crypto-currencies in 2018.
A report by the consulting firm Capgemini found that 29% of millionaires had expressed a high level of interest in cryptographic currency investments. Almost 27% of the millionaires surveyed said they had a general interest in digital assets.
Investors who want to invest millions or even billions need absolute certainty that their money is safe and the investment is easy to make. In fact, many fund management companies are simply not allowed to own crypto currencies directly.
ETFs are ideal for this type of investor to get a Bitcoin exposure. Fund managers are allowed to hold ETFs in their funds, whereas opening a Coinbase account to invest client funds would not be allowed.
The main thesis behind a Bitcoin ETF Bull Run is that it enables institutional and high net worth individuals to enter the crypto-currency markets. The fact that an ETF is supported by actual Bitcoins leads to an increase in crypto demand.
Bitcoin - Striking similarities with gold
Both gold and Bitcoin have many similar properties. This means that interesting insights into Bitcoin can be gained by looking at the impact of the introduction of a gold ETF on the gold price.
What happened when the Gold ETF was launched?
It triggered the biggest bull run in the history of gold. Prices rose from just $331.60 an ounce to a high of $1,917.90. This is an incredible price increase of 478% after the launch of the gold ETF.
In both cases, there was a sharp rise in prices before the opening of the futures markets and a significant fall in the prices of both investments when futures trading actually started.
It should be noted that the Bitcoin markets simply move much faster than gold, as can be seen from the market cycles. Over the past 45 years, the gold market has seen seven sustained bear markets that have led to a drop in the price of gold of more than 30%. The longest negative correction period for gold between 1988 and 1993 was about 6 years. This is an exceptionally long period.
Looking at the seven major corrections in the gold market, the average bearish period is only about three years.
By contrast, the longest bear market of all time forBitcoin was only 410 days. Even theBitcoin bear market of December 16, 2017, was only 218 days.
The length of Bitcoin Bear Markets is shown in the following table. It should be noted that this table excludes the current Bitcoin bear market as we do not know when it will end.
From the above graph it can be seen that the Bitcoin corrections are probably shorter than the gold corrections. We see an average bear market length of 128.6 days.
If we consider that the average length of a correction for gold is about 3 years, we find that the Bitcoin market moves about 10 times faster than the gold market. What could this mean for a Bitcoin ETF and a Bitcoin price increase? It took 3070 days from the launch of the Gold ETF on March 28, 2003 to reach an all-time high of $1,917.90 on August 23, 2011.
This means that after the introduction of the Bitcoin ETF (if the Bitcoin market follows a similar pattern to gold) we could see an all-time high ten times faster . This could mean a price increase of around 300 days after the launch of the Bitcoin ETF.
The Bitcoin market still has plenty of room for growth
It may appear that the Bitcoin market is already enormous. Did you know, however, that the gold market is estimated at around $7.07 trillion and is about 55 times larger than Bitcoin?
The interesting thing about Bitcoin and gold is that not only do these assets have similar characteristics, but Bitcoin also has a number of advantages over gold.
- Bitcoin cannot be counterfeited. Gold, however, is confronted with a widespread counterfeiting.
- Bitcoin is more portable. Transporting $100 million in gold is not only difficult, but also impossible without outside help. An unlimited amount of Bitcoin, however, could be transported across borders.
- BTC can be used to buy goods & products. More and more stores accept Bitcoin. The latest of these are Samsung stores in Estonia and Lithuania. With Gold you will have difficulties to buy a new mobile
- Comfort & Safety. Many people choose to store their gold in vaults. Bitcoin does not have this problem and appears to be a more secure alternative.
- Risk of government seizure. In 1933, the US government attempted to confiscate all gold owned by private individuals. This scenario is almost impossible with Bitcoin.
- Bitcoin is better divisible. Gold is available in a range of sizes. But have you ever tried to "cut off" a piece of a 1 kg gold bar? Bitcoin is much more divisible because a single Bitcoin is made up of 100 million Satoshi's.
Bitcoin is not called digital gold for nothing. In fact, many people have already come up with the idea that Bitcoin could be a better version of physical gold. As a result, many people argue that Bitcoin is indeed chronically undervalued compared to the precious metal. The approval of a Bitcoin ETF could be the catalyst that will trigger a revaluation of Bitcoin and make ownership of the asset broader.
Will the history of the Gold ETF repeat itself and lead to a rise in Bitcoin prices? It is far from certain that the SEC will approve the latest BitcoinETF application. Positive price actions are likely to attract reinstitutional funds and further increase price dynamics, and private investors may see further highs after institutional money. No telling what the future holds for the price of Bitcoin. But one thing is certain. Bitcoin is currently at a critical crossroads, and everything depends on the SEC approving the current BitcoinETF application. However, if the Bitcoin ETF application is rejected, it is not unlikely that we will break the 2013-2015 correction period length.
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