The latest influx of Bitcoin (BTC) spot ETF applications in the United States is certainly generating hype, but some analysts are split on whether that excitement is warranted.
While many claim approval will invite a new wave of investor capital into the asset, others think it may only amount to a sell-the-news event.
The Bearish Case for a Bitcoin Spot ETF
In an interview with Bloomberg, FLX Networks Managing Director Jillian DelSignore questioned whether a Bitcoin spot ETF will attract significant capital beyond the first few days from its launch.
She cited the ProShare Bitcoin Strategy ETF (BITO) as an example – a Bitcoin Futures ETF which listed on the NYSE in October 2021. While Bitcoin spot ETF backs its shares with actual BTC, a futures ETF is backed by Bitcoin futures contracts.
BITO had the second-largest opening day in BITO history, attracting over $1 billion, but mostly stopped absorbing capital after a few days.
“I think we’ll definitely see multiple billions of dollars come in,” said DelSignoreregarding a potential spot ETF. “I do think it will be a very early momentum-driven asset growth, and then the question mark for me is what happens from there. Does it quiet down?”
JP Morgan strategist Nikolaos Panigirtzoglou happens to agree. In a memo this month, the strategist said that spot ETFs have already existed in Canada and Europe for years, and have failed to attract much capital, “failing to benefit from investor outflows from gold ETFs.”
While conceding that there may be some benefits to having a spot ETF, the strategist predicted that they would be “rather marginal.”
The Positives of a Spot ETF
Contrarily, Bloomberg Intelligence ETF analysts including Athanasios Psarofagis and James Seyffart see great potential for a spot ETF.
When looking at Canada’s existing crypto ETFs, analysts note that they’ve attracted 1% of the ETF market in the country already. If a roughly similar share of the United States’s ETF capital rushed into a U.S. Bitcoin spot ETF, that would amount to $54 billion.
For context, the total US commodity ETF market amounts to $137 billion. Furthermore, Glassnode analysts say that roughly $13.5 billion worth of BTC actively participates in price discovery right now.
Furthermore, Nate Geraci – president of the advisory firm “The ETF Store” – thinks a spot ETF provides meaningful benefit to investors above a futures ETF, noting that the latter doesn’t perfectly track BTC’s price. While BITO is down 63% since launch, BTC has dropped just 53% since that time.
“Investors want the real deal,” he said. “They don’t want to hassle with potentially significant tracking error.”
Grayscale Bitcoin Trust (GBTC) – the world’s largest Bitcoin fund holding over 650,000 BTC under management – also faces a tracking error issue. Its share price currently trades 26% below the value of its underlying BTC, due to an inability to redeem shares easily for coins the way an ETF can do.
The fund is embroiled in a legal battle with regulators to transition into a spot ETF, in which case its share price will immediately restore to parity with its BTC.
BlackRock’s entry into the Bitcoin ETF race last month was alone able to boost Bitcoin’s price over the past few weeks, raising optimism that a spot ETF might finally be approved. The firm’s CEO Larry Fink, who was once a Bitcoin skeptic, said last week that Bitcoin may have the power to “transcend any one currency.”
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