- The cryptocurrency community has eagerly awaited the approval of a spot bitcoin exchange-traded fund (ETF), which is expected to attract significant new institutional investment into bitcoin.
- Estimates for potential demand range widely, from $3 billion on the first day to $55 billion over five years. Unlike existing bitcoin ETFs tied to futures contracts, a spot bitcoin ETF would precisely track the price of bitcoin.
- Dozens of firms have applied to the SEC for a spot bitcoin ETF. If approved, these ETFs could significantly expand bitcoin investment, though predicting demand remains difficult for this novel asset class.
The cryptocurrency community has eagerly awaited the approval of a spot bitcoin exchange-traded fund (ETF). If approved, a spot bitcoin ETF is expected to attract significant new institutional investment into bitcoin. Estimates for the potential demand range widely, from $3 billion on the first day to $55 billion over five years.
The Promise of a Spot Bitcoin ETF
Unlike existing bitcoin ETFs tied to futures contracts, a spot bitcoin ETF would precisely track the price of bitcoin. This avoids the costs and tracking errors associated with constantly rolling over futures contracts. The approval of spot bitcoin ETFs could therefore transform the bitcoin investment landscape.
Estimating Potential Demand
Estimating demand for a new spot bitcoin ETF is challenging. Analysts look to the size of existing products like the Grayscale Bitcoin Trust, which holds $32 billion in assets, as a gauge of latent demand. Some also draw comparisons to gold ETFs, which saw huge inflows after launching. Crypto firm NYDIG predicts demand of $30 billion for a spot bitcoin ETF.
Big Investors as a Source of Demand
Advocates believe major institutional investors like pension funds could drive significant demand. If big asset managers like BlackRock enter the market, it could spur adoption by financial advisors. Over five years, one firm estimates spot bitcoin ETFs could attract $55 billion based on uptake in smaller markets like Canada.
Crowded Field of Providers
Dozens of firms have applied to the SEC for a spot bitcoin ETF. However, not all providers are likely to succeed long-term. The ETFs with the best marketing will attract assets, while others will drop out within a few years. But overall, the approval of spot bitcoin ETFs could significantly expand bitcoin investment.
Conclusion
While estimates vary, a spot bitcoin ETF is expected to be a huge catalyst for new bitcoin investment. But predicting demand remains difficult for this novel asset class. If approved, the true impact may become clearer based on actual inflows into the new spot bitcoin ETFs.
