How Spot ETFs Affect Cryptocurrency Trading.

Introduction.

In the 2023 crypto awareness grew significantly despite the difficulty it has been facing from the US regulators recently. one of the very fortunate scenarios; we had the interest of traditional institutional investors. The likes of top asset management firms  with trillions of dollars e.g. Blackrock. Who have all applied for a Bitcoin spot ETF(Exchange Traded Funds. The U.S SEC to announce the first of its kind approved Bitcoin spot ETFs come January 2024. More on this in a moment.

cryptocurrency Exchange Traded Funds (ETFs)

Crypto ETFs can serve as a way to get access to cryptocurrencies without buying and storing digital assets yourself. This allows traditional investors to get exposure to crypto assets using their standard stocks brokerage accounts to trade on regular stock exchanges. It eliminates the need to depend on a crypto exchange or the dealing with the cost and adverse effects of directly owning a digital asset. 

Note: that  there are different kinds of crypto ETFs; Futures ETFs and Spot ETFs.

FUTURES ETFs

I know some of you are a bit dazzled right now hearing about a Futures ETF when spot ETF is so new to most of you but there are Futures ETFs and to even surprise you further there already exist some approved and functional Futures ETFs. 

 The first crypto ETF on U.S. markets is the ProShares Bitcoin Strategy ETF and it began trading on Oct. 19, 2021 at the New York Stock Exchange(NYSE) under the ticker BITO, which will track Bitcoin(BTCUSD) prices through futures contracts traded at the Chicago Mercantile Exchange(CME). 

THE SPOT ETFs

Spot crypto ETFs in the most basic term means directly holding cryptocurrencies. Spot ETFs buy and securitize cryptocurrencies. Unlike the Futures ETFs, the Spot ETFs allow investors to gain direct exposure to digital assets.

2014 was a huge blow to applicants. They were denied despite 3500+ applications. And just recently we have about 11 new institutions filling for the same Spot ETFs. However this time we have very key institutions like Blackrock, fidelity and many other asset management firms applying for it this time around. These people are the most powerful and the richest institutions in the world. Blackrock recently announced JP Morgan as one of its Authorized Participants(AP) ahead of the approval of the first wave of SEC’s window to approve the Spot ETFs. Blackrock announced their APs already while another asset management firm “Bitwise” said it’s going to buy $200m worth of Bitcoin to seed its Spot Bitcoin ETF, a figure ridiculously larger than the $10m Blackrock was planning to seed their Spot Bitcoin ETF with.

POSITIVE EFFECTS OF SPOT ETFS

I’ll give you 3 important benefits the Bitcoin Spot ETFs will bring:

1. The first effect is its impact on the price of Bitcoin. Standard Chartered Bank predicted Bitcoin price above $100k. We even have some predictions that at the peak we could see bitcoin at $1M per coin. the introduction of institutions will shape the industry to greater heights  
2. The inflow of more institutional players. It is already becoming so much more vivid that many players in the traditional world have been looking for opportunities to hold bitcoin in a spot account, this coming ETF will be the answer they have been waiting for. It is good for Bitcoin and the entire crypto space because it brings about mass adoption, allowing even the skeptic investors to begin to have more trust in the technology and finally giving it a try out. 
3. For traders this is good because it means more people on the Bitcoin network which means more emotions in the market that creates the volatility they need to make more out of any trend as a seasoned trader. 

. . NEGATIVE IMPACT OF THE BITCOIN SPOT ETF

 Here are 4 disadvantages of the Spot ETFs:

1. Bitcoin scarcity: furthermore Bitcoin was announced as a scarce asset than Gold. In a recent article, CNBC on December the 6th of 2023 claimed that Bitcoin is the first asset in history “that is scarcer than gold”. And This statement reflects the growing recognition of Bitcoin’s uniqueness as a digital store value. That cannot be inflated, manipulated or confiscated by any central authority. Bitcoin will only ever have 21m coins in supply. But Gold whose supply is unknown and deeply  depends on mining activities .
2.  Institutional adoption of Bitcoin can bring regulations:
   This can lead to the introduction of more regulations on the use of crypto. As we are already having different crypto bills being prepared across different nations. If the regulations become too stringent, so it can lead to laws exempting retail investors from accessing the market. It can very well lead to regulatory scrutiny or regulatory uncertainty.
3. Elevated fees and expenses could arise. Governments can enforce taxes just as we have seen with Bitcoin miners in 2022. This can have other forms of impact this article doesn’t provide an answer to.
4. Market manipulation: it is very popular in the trading world. That institutions and large shareholders of crypto assets have been playing the manipulation game for a while now. This has resulted in massive liquidations or forced selling/paperhand of any crypto asset in question. Only to have the market value return to its initial levels.

CONCLUSION

The Spot ETF is a really good thing for crypto because of the many benefits it may bring with it. It being approved will really cause a parabolic market not just for Bitcoin but the entire crypto market. However we should also be prepared for the downside should the ETF be denied. BTC will be fine after a while but the drop will be so significant it can lead to the entire market feeling the heat. What keeps me positive is that we are in the Bitcoin halving year with the bullrun waiting for a kickoff at any moment. So we should be fine if denied but i also don’t think it will be denied but rather postponed. That’s a wrap guys, happy new year to you!