Bitcoin ETF: will the BTC price rise?

Note from Bitcoin This is an “op-ed” article that uses a combination of factual information and informed opinion. We investigate a variety of factors that could affect the Bitcoin market once an ETF is approved.

Speculations reported approval of the Bitcoin ETF as early as August 16, 2018. If the SEC is approved, it is assumed that this move could trigger one of the largest Bitcoin bull runs of all time.

News publications and social media are speculating about an upcoming decision: - Bitcoin ETF approval, which gives investors a drastically 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 trade like stocks and prices fluctuate throughout the trading day.

As for Bitcoin, ETFs essentially offer an easy way to gain exposure to Bitcoin. They also have the added benefit that the owner doesn't have to worry about Bitcoin's storage or security. Instead, this is the responsibility of the ETF provider.

·       regulatory authority: SEC (USA)

·       Application made by: CBOE Global Markets

·       Norms: The ETF suggested holding 25 bitcoins per share. Partial shares cannot be held in an ETF, which means the minimum investment would be around € 185.000 at Bitcoin prices of € 8,4.000. This means that the ETF is geared towards institutional and high net worth individuals. It also takes reasonable precautions to protect the average retail investor.

·       Insurance: The offering includes provisions of $ 25 million in primary coverage and additional coverage of up to $ 100 million. Provisions can be made for further coverage extensions.

·       Support: The ETF is widely supported by the cryptocurrency community and 250 comments (mostly in support of approval) have been posted on the SEC's official website.

·       Supported by Bitcoin: The proposed ETF is to be supported by Bitcoin. This means that with a cash inflow of USD 100 billion, Bitcoin worth USD 100 billion must be bought in order to fully support the ETF.

The road to a Bitcoin ETF is long and arduous. In fact, the famous Winklevoss twins proposed a Bitcoin Trust that looked like an ETF back in 2013. Numerous attempts have been made to approve a Bitcoin ETF over the past five years, all of which have failed. So why are people so optimistic that the Bitcoin ETF will be approved?

Winklevoss twins

Most speculators believe that the latest ETF application will be approved because of the structure of the ETF. Average retail investors don't have € 185.000 to invest in Bitcoin. This fulfills the main concern of the SEC (protection against small investors).

Both speculators and the CBOE have concluded that the latest proposal meets all of the SEC's ETF approval requirements. This, coupled with a mature cryptocurrency market, has led to widespread optimism about the ETF's approval.

Would a Bitcoin ETF drive the price higher?

It's no secret that many financial institutions and high net worth individuals are interested in investing in cryptocurrencies.

Financial giants with trillions of client funds under management like Blackrock, JPMorgan and Fidelity all expressed their interest in cryptocurrencies in 2018.

A report from the consulting firm Capgemini found that 29% of millionaires had expressed a high interest in investing in cryptocurrency. Almost 27% of the millionaires surveyed said they had a general interest in digital assets.

Capgemini logo

With such sums of money, however, investors would definitely not put your money in one Wallet or a Exchange invest.

Investors looking to invest millions or even billions need absolute certainty that their money is safe and the investment is easy to make. In fact it is many fund companies are currently not allowed to own cryptocurrencies directly.

ETFs are ideal for this type of investor to get exposure to Bitcoin. Fund managers are allowed to hold ETFs in their funds while opening one Coinbase Accounts for investing customer funds would not be allowed.

The main thesis behind a Bitcoin ETF Bull Run is based on the fact that it enables institutional and high net worth individuals to enter the cryptocurrency markets. The fact that an ETF is backed by actual bitcoins leads to an increase in crypto demand.

Bitcoin - striking similarities to gold

Both gold and bitcoin have many similar properties. This means that interesting insights into Bitcoin can be gleaned from looking at the impact of introducing a gold ETF on the price of gold.

BTC and gold

What happened when the gold ETF was launched?

It sparked the greatest bull run in gold history. Prices soared from just $ 331,60 an ounce to a high of $ 1.917,90. That is an incredible one Price increase of 478% after the launch of the Gold ETF.

Gold price development
BTC Coinmarketcap

In both cases there was a sharp rise in prices prior to the opening of the futures markets and a significant fall in prices for both investments when futures trading actually began.

Market speed

It should be noted with both graphs that the Bitcoin markets simply move much faster than gold, as this can be seen in market cycles. In the past 45 years, the gold market has seen seven persistent “bear markets” that have caused the price of gold to decline by more than 30%. The longest negative correction period for gold was around 1988 years between 1993 and 6. That is an extraordinarily long time.

Looking at the seven major corrections in the gold market, the average bear market is only about three years.

Gold price corrections history

For Bitcoin, on the other hand, the longest bear market of all time was only 410 days. Even the bitcoin bear market on December 16, 2017 is only 218 days.

The length of the Bitcoin “Bear Markets” can be seen in the table below. It should be noted that this table excludes the current Bitcoin bear market as we do not know when it will end.

BTC corrections history

From the graph above, it can be seen that the Bitcoin corrections are significantly shorter than the gold corrections. You see an average baisse market length of 128,6 days.

If we consider that the average length of a correction for gold is around 3 years, we find that the Bitcoin market is currently moving around ten times as fast as the gold market. What could that mean for a Bitcoin ETF and a Bitcoin price increase? It took 3070 days from the inception of the exchange-traded gold fund on March 28, 2003 to its all-time high of $ 1.917,90 on August 23, 2011.

It means that we after the introduction of the Bitcoin ETF (if the Bitcoin market follows a pattern similar to gold) could see an all-time high ten times faster. That could mean a price increase of around 300 days after the launch of the Bitcoin ETF.

The Bitcoin market still has a lot of room for growth

It may seem that the Bitcoin market is already huge. Did you know, however, that the gold market is valued at around $ 7,07 trillion and around 55 times larger than Bitcoin?

The interesting thing about Bitcoin and Gold is that not only do these investments have similar properties, but that Bitcoin also has a number of advantages over gold.

·       Bitcoin cannot be counterfeited. Gold, on the other hand, is facing widespread counterfeiting.

·       Bitcoin is more portable. Moving $ 100 million in gold is not only difficult but also impossible without outside help. An unlimited amount of Bitcoin, on the other hand, could be transported across borders.

·       BTC can be used to buy goods & products. More and more businesses are accepting Bitcoin. The latest of these are Samsung stores in Estonia and Lithuania. With gold, you will have difficulty buying a new cell phone

·       Comfort & Security. Many people choose to keep their gold in vaults. That means it is not particularly accessible in times of crisis. Bitcoin does not have this problem and appears to be a safer 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 more divisible. Gold comes in a number of sizes. But have you ever tried to “cut off” a piece of a 1 kg gold bar? Bitcoin is clearly more divisible as a single Bitcoin consists of 100 million Satoshi's.

Bitcoin is called digital gold for a reason. In fact, many people have already had the idea that Bitcoin could be a better version of physical gold. This leads many people to argue that bitcoin is actually chronically undervalued compared to the precious metal. The approval of a Bitcoin ETF could be the catalyst that will initiate a re-evaluation of Bitcoin and expand ownership of the asset.


Wall Street

Will the history of the gold ETF repeat itself and cause Bitcoin prices to rise? It is far from certain that the SEC will approve the latest BitcoinETF application. Positive price action should attract re-institutional money and further increase price dynamics. For private investors, further highs can be reached after institutional money. Nobody knows what the future holds for the price of Bitcoin. One thing is certain, however. Bitcoin is currently at a critical crossroads, and it all depends on the SEC approving the current BitcoinETF application. If the Bitcoin ETF application is rejected, however, it is not unlikely that we will break the correction period length from 2013 to 2015.

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