The rejoicing in the financial markets over the Securities and Exchange Commission’s (SEC) Jan. 10 approval of the spot Bitcoin exchange-traded fund (ETF) signals broad global sentiment that could make 2024 the most successful for cryptocurrency to date, investors and market analysts have told The Epoch Times.
Following the SEC’s about-face on spot Bitcoin ETFs, after having rejected more than 20 applications from various exchanges in the years from 2018 to 2023, the products have traded at a volume that surpassed almost all expectations.
Without offering investment advice, commentators note that trading volume hit $11 billion on the fourth day of trading and now stands at roughly twice that figure in total, according to figures from The Block. Bitcoin itself traded at well above $43,000 as this article went to press.
On Friday, news broke that the Hong Kong division of Chinese asset manager Harvest Fund Management had submitted an application to the city-state’s financial regulator, the Securities and Futures Commission, with a view to launching a spot Bitcoin ETF as early as next month.
Harvest Fund’s Hong Kong branch clearly hopes to emulate the success of such stateside institutional investors as BlackRock, whose views on the legitimacy of Bitcoin have undergone a radical change in recent years, from outright hostility to enthusiastic endorsement.
Experts who shared their views with The Epoch Times concurred with the sense of others in the market that exchange-traded funds tracking other types of cryptocurrency are likely to gain approval soon on the heels of the spot Bitcoin ETF.
Yet on one level, the strong results are concerning, the experts say, as regulators dig in their heels against further concessions and as smaller and retail investors with less understanding of complex price dynamics chase the success of the big asset managers. The risks and dangers are as severe as ever. It is essential to maintain a critical perspective on a digital asset class still highly prone to misuse by bad actors. Fraud, scams, and the bilking of unsophisticated investors unversed in detecting them, continue to erode the credibility of cryptocurrency and to incur huge losses every year.
The disparity between the levels of sophistication at large institutions, such as BlackRock, and on the part of Main Street investors remains one of the biggest hurdles to the mainstream acceptance and long-term viability of digital assets and exchange-traded funds that track them, the experts say.
SEC Chair Gary Gensler brooks no deviation from what it considers appropriate standards of transparency, even when it comes to sensitive internal communications and market strategies.
‘No Crystal Ball’
The enthusiasm for crypto in the wake of the SEC’s ruling is hard to ignore, acknowledges Renato Brioni, general partner of Mocha Ventures, a Lichtenstein-based digital asset manager.“All eyes are on crypto, and we might see what could be the biggest bull market in history in 2024,” Mr. Brioni told The Epoch Times.
It is, however, impossible to say exactly when such a bull market might begin or who its beneficiaries would be, he conceded.
“Many inside and outside of the crypto industry forget that there is no certain start to the bull market. No one has a crystal ball to predict the future. However, one can read the data and recognize patterns,” Mr. Brioni stated.
In the long term, the surge of interest in the spot Bitcoin ETF is not necessarily good news for ordinary investors more sensitive to price than some of the large asset managers.
“We are witnessing increased pressure that people are putting on Bitcoin, which might start pushing the Bitcoin price upwards once the price equilibrium between retail and institutional Bitcoin holders is established,” observed Mr. Brioni.
This phenomenon deserves particular scrutiny because of the bifurcated nature of the crypto market, he believes. Without a proper understanding of the price dynamics and the long-term trends, Main Street investors, or those with a more standoffish disposition, could end up in a tricky position.
Mr. Brioni said he sees a danger that those with fear of missing out (FOMO) may quickly get involved and come up against the high levels of volatility that have long characterized crypto prices and the underlying values.
“The increased level of interest in crypto comes from both active traders and bearish users. On one side, you’ve got the experienced traders who’ve been in the crypto game for a while. They are extremely optimistic and think this is the best time to buy cryptocurrencies with a ‘bearish price tag,’” Mr. Brioni said.
“Then, on the other side, you have people who weren’t sure about crypto or didn’t like it before. But even these people are starting to get interested. Maybe they’re worried about missing out, or they’ve changed their minds because of new things happening in the market. They’re slowly starting to get into crypto, too. However, those who get into crypto because of FOMO now are faced with extreme market volatility,” he continued.
Struggles With Regulators
In addition to these concerns, Mr. Brioni sees a high probability that, despite SEC Chair Gary Gensler’s relatively charitable comments about spot Bitcoin ETFs in the January 10 announcement, regulators will drag their feet on approval of other crypto ETFs.One that has been the subject of speculation is an ETF tracking Ethereum (ETH), Bitcoin’s longtime rival.
Last week, the SEC sent out an official notice that it demanded more time to weigh a requested rule change by which Grayscale’s Ethereum Trust (ETHE) would become an ETF.
“The ETH ETF is inevitable, but the journey might look a lot like it did for Bitcoin. The SEC will take its time. Ether has already shown it’s stronger than Bitcoin in many ways. This strength is probably going to play a big role when it comes to getting an ETF approved for Ether,” Mr. Brioni reflected.
Gary Gensler has made public statements openly contemptuous of crypto, calling it “a field rife with fraud, rife with hucksters” and downplaying or ignoring judicial rulings not favorable to his broad purview at the SEC or his tough stance. Yet, looking at the long term, Mr. Brioni is hopeful.
“As these crypto ETFs start rolling out, more people might start seeing crypto as another regulated asset that they can trade and diversify their portfolio,” he said.
An Insiders’ Club
Mauricio Di Bartolomeo, co-founder and chief strategy officer of the Toronto-based financial services firm Ledn, shares the view of a bifurcated market in which the larger, institutional investors have a clear and decisive advantage.“ETF issuers, such as BlackRock, Fidelity, Franklin Templeton, and others have tapped into a gold mine. The launches from BitWise and ARK Invest have racked up more than $500 million in flows within the first month,” Mr. Di Bartolomeo told The Epoch Times.
He went on to quote Bloomberg’s ETF analyst, Eric Balchunas: “For any normal launch in the first month, that’s considered blockbuster-level success.”
Mr. Di Bartolomeo also sees an upside when it comes to the risk associated with Bitcoin. While it is still real, and the value of a portfolio can be wiped out overnight, Mr. Di Bartolomeo believes that the approval of the spot Bitcoin ETF has made Bitcoin price discovery the domain of regulated platforms, curbing excessive speculation and reducing the risk profile of Bitcoin trading.
Hence, more regulated entities seek to take part in the trading, and those institutions that borrow Bitcoin for trading purposes have a higher quality of counterparty than they would otherwise, he said.
“All this introduces more robustness, legitimacy, and opportunity to Bitcoin lending markets,” Mr. Di Bartolomeo said.
Nevertheless, U.S. regulators are still paying close attention to trading platforms and treating them like pariahs, he noted.
Sam Bankman-Fried, founder of the imploded cryptocurrency exchange FTX, is now a convicted felon facing the likelihood of decades in prison upon his sentencing in March. The SEC has also moved aggressively against such exchanges as Kraken, Grayscale, Coinbase, and Binance, and many of their top personnel.
The Learning Curve
Small and retail investors wishing to navigate these treacherous waters often still have a lot to learn, concurred Kyn Chaturvedi, CEO of Minterest, a Talinn, Estonia-based decentralized finance (DeFi) platform.It is a mistake to assume that the relative ease of Bitcoin ETF trading will translate to a surer grasp of Bitcoin and its complex price dynamics, Mr. Chaturvedi believes.
“While a Bitcoin ETF could enhance Bitcoin’s legitimacy and provide investors with price exposure, it does not promote the utility or practical adoption of the underlying asset. True mainstream acceptance requires simplifying Bitcoin’s actual use by addressing the friction of buying, holding, and transacting Bitcoin while abstracting away the complications of seed phrase management and gas fees,” Mr. Chaturvedi told The Epoch Times.
When it comes to regulation, Mr. Chaturvedi believes that the European Union’s Markets in Crypto Assets Regulation (MiCA) framework offers one of the more sophisticated and nuanced environments for digital innovation.
“MiCA has been ahead of the pack as part of a multi-year rollout to introduce supportive regulations around crypto assets. MiCA is unique in that it adapts existing rules to accommodate cryptocurrencies, instead of imposing traditional financial regulations. And, under this structure, Bitcoin and other fully decentralized assets are specifically excluded from direct regulation,” Mr. Chaturvedi said.
