(CTN News) – A Bitcoin ETF exchange-traded fund is racing into the heart of the financial establishment. Will it strike gold?
Investors are betting U.S. regulators will authorize a spot bitcoin ETF, thereby unleashing a new wave of demand for the world’s biggest cryptocurrency.
What kind of cash could such a fund generate?
According to market players, estimates range from $3 billion on its first day to $55 billion over five years.
The gold market has been transformed by the approval of spot ETFs, according to Dave Mazza, chief strategy officer at ETF provider Roundhill Investments.
Just like the first gold ETF in 2006 or the bitcoin futures ETF in 2021, he expects the first spot bitcoin ETF to see a “wave of buying.”
A number of mainstream investment giants, as well as crypto-focused firms like Grayscale, have applied for spot bitcoin ETFs. SEC chairman said Thursday that the agency will consider eight to ten new spot bitcoin filings, without indicating when decisions will be made.
ETF optimists are opposed by traditional investors who say new investment products won’t win them over.
According to George Gagliardi, an investment advisor with Coromandel Wealth Management in Lexington, Massachusetts, cryptocurrencies do not have any intrinsic value.
Despite the prospect of an ETF offering direct exposure to bitcoin, the cryptocurrency’s price rose to $35,198 last week.
Investors and analysts use different metrics to estimate demand for an ETF, from market size to demand for existing products. Prices move mostly based on investor sentiment on Bitcoin markets.
NYDIG estimates demand for a spot bitcoin ETF at $30 billion. Their calculation compares the gold and bitcoin ETFs’ sizes – $210 billion and $28.8 billion, respectively – and adjusts for volatility.
A brand-new asset class rarely hits the ETF market, says Todd Sohn, Strategas Securities’ ETF strategist. Then it’s hard to predict how much demand there will be.”
Bitcoin ETFs, whose prices are based on futures, don’t track price movements precisely, and they’re expensive to roll over, so investors don’t like them.
Valkyrie Funds’ investment chief, Steven McClurg, says the size of Grayscale Bitcoin Trust (GBTC), a private trust that owns bitcoin directly, can help gauge demand.
“If you look at GBTC’s current market cap – $3.2 billion – it’s probably day-one demand” for a spot bitcoin product.
Several advocates say financial advisers, pension funds, and other money managers could be a big source of demand for a spot bitcoin ETF.
VanEck, which has a bitcoin ETF awaiting SEC approval, said some wire houses and financial advisers would add their fund if BlackRock hits the market.
BlackRock wouldn’t comment on its spot bitcoin ETF, other than to say it’s still waiting for SEC approval.
He said spot bitcoin ETFs will bring in $55 billion in the first five years, according to Matthew Hougan, CEO of Bitwise Investments. Based on spot bitcoin ETFs in smaller markets, like Canada, he made his forecast.
Steve Sosnick, chief strategist at Interactive Brokers, says that even if demand is big, it’s unlikely to sustain offerings from all the asset managers.
There’s no guarantee they’ll all be a hit, he said. In two years, half of them will be gone.”