In a new report published this week, Coinbase (COIN) is of the opinion that an approval of spot Bitcoin exchange-traded fund (ETF) would introduce cryptocurrencies to a broader investor base.
The analysts expect it to open the crypto market to new classes of investors which include registered investment advisers (RIAs), retirement funds and institutions that have historically not been able to access the asset class.
According to its head of institutional research, David Duong, the opportunity would potentially be more than just new money accessing the sector. The ETFs will “ease the restrictions for large money managers and institutions to buy and hold Bitcoin, which will improve liquidity and price discovery for all market participants”, he added.
On top of this, being an investment vehicle that meets all of the compliance requirements while getting the green light from regulators might also open the door to new products. This could multiply the existing crypto offerings for accredited investors and expand adoption, Coinbase said.
This has the potential to add billions to the total crypto market cap in the long-term, claimed the report. The ETFs are therefore expected to lay the foundation for a “more regulated environment, greater inclusion and a material growth in demand”.
According to the crypto exchange platform, the buzz around ETFs is happening at the right time as it is bringing more focus to Bitcoin. It comes at an opportune stage “as the world has fewer safe haven alternatives amid a backdrop of rising geopolitical tensions and increasing economic dysfunction”.
Talking about the same, Coinbase gave an example saying hwo the US Treasury bond market has been shaken up and the US banking sector “remains highly vulnerable”, which makes Bitcoin all the more attractive heading into 2024 as an “alternative to the traditional financial system”.
ETFs are a popular investment product that allows investors to gain access to cryptocurrencies without buying the underlying digital assets themselves. They are traded on an exchange and track the performance of the underlying asset.
A spot Bitcoin ETF will therefore be backed by physical Bitcoins that underpin the value of the ETF. If the value of the digital coins backing the ETF rises, the value of the investment can generally be expected to increase too, making it a cheaper and easier way to invest in the top coin.
Recently, US investors have been particularly riding on the potential approval of these funds, pushing Bitcoin’s price up. According to a report published by crypto services provider Matrixport last month, most of these gains were accumulated during the US trading hours.
Its head of research, Markus Thielen, wrote: “This is a significant development and shows that US institutions and US investors are embracing the news that a US-listed spot Bitcoin exchange-traded-fund (ETF) appears imminent.”
The US Securities and Exchange Commission’s (SEC) is yet to decide on the fate of a number of Bitcoin ETF applications filed by investment firms, like BlackRock and Fidelity, as well as crypto companies like Grayscale.
The regulatory watchdog’s chair recently said they are reviewing eight to ten of the applications. However, there is no clarity on the decision timeline as it remains unspecified.
The industry is quite optimistic about BlackRock’s spot ETF in particular as it had appeared on the Depository Trust and Clearing Corporation (DTCC) list recently. This list provides for post-trade clearance, settlement, custody and information services. The move is often made before an application gets the official approval from the SEC.