In "Balancing Act - The Upside and Downside Risks of a Bitcoin ETF", we delve into the intricacies of the potential approval of a Bitcoin Exchange Traded Fund (ETF) in the United States. Discover how this pivotal move, sought by financial giants like BlackRock, could drastically impact the price and market dynamics of Bitcoin.
00:00What's up guys? Welcome back to Decentralized News. In today's video, I want to just talk about this whole issue of the U.S. Spot Bitcoin ETF, which some news came out just a few hours ago.
00:16This is Coindesk Daily. I'm Jen Sinassi.
00:26Any SEC approval of a Spot Bitcoin exchange traded fund will not be a game changer for crypto markets.
00:33That's the top line of a new report from JP Morgan.
00:36An analyst says these ETFs have existed for some time outside the U.S., in Canada and in Europe, but have failed to attract large investor interest.
00:45A unit of BlackRock filed paperwork last month for the formation of a Spot Bitcoin ETF, prompting other asset managers to follow, including Bitwise.
00:54The SEC has yet to approve such an ETF, but Bitwise's chief investment officer, Matt Hogan, told Coindesk TV earlier why they followed suit.
01:02Let's take a listen.
01:05You have to listen when BlackRock comes to the market.
01:08They're the largest ETF issuer in the world.
01:11They're very careful.
01:12They're very connected.
01:13And I would be lying if I didn't say that that was an important signal as well.
01:19Well, that approvals are now in sight.
01:23Now that the SEC has acknowledged accepting a BlackRock Spot Bitcoin ETF application for review.
01:33This obviously means that it hasn't been granted, but they will be reviewing it.
01:38And as far as deadlines go, we're looking at a deadline of about 45 days from about this time or as long as 240 days.
01:51But what I really want, obviously, to touch on with this whole Spot Bitcoin ETF situation is what a lot of people have been asking me, which is how is this expected to actually impact the markets?
02:09This is what I want, let's say, for just speculative purposes, that the Bitcoin ETF gets approved.
02:19OK, so if it does get approved, obviously, the question of what could happen to the price of Bitcoin if this ETF is approved in the United States is something that's obviously very intriguing to a lot of us.
02:32It follows a flurry of recent filings from not only BlackRock, but from other firms as well.
02:41And just to unravel the possible sort of scenarios, we need to first understand, of course, the mechanics of an ETF and its historical impact on asset prices.
02:53OK, so an ETF is effectively a type of investment fund or an exchange traded product that is traded on stock exchanges.
03:03And ETFs are more or less similar to mutual funds, but they do trade like a common stock on a stock exchange.
03:11OK, so they do offer public investors with an avenue to gain exposure to an asset or a portfolio of assets rather from stocks to commodities.
03:20And now cryptocurrencies are like Bitcoin without having to actually own the underlying asset, which is very, very attractive to a lot of institutional investors.
03:30OK, so ETFs do have a critical role in providing markets with liquidity by sort of offering exposure to a diverse range of assets that can actually make it easy for investors to buy and sell those assets, which actually boost liquidity as well.
03:47Also, increased liquidity often results in more efficient price discovery, minimizing the spread between buy and sell prices.
03:55So let's talk about just the historical impact of ETFs on asset prices.
04:01OK, so historically, the approval of an ETF has tended to sort of positively affect the price of an underlying asset.
04:10For instance, when the first gold ETF was approved in the US in 2004, it did open the floodgates for retail and institutional investors, leading to that increased demand for gold.
04:25And this surge in demand significantly drove the price of gold up.
04:29And in the context of Bitcoin, we are sort of looking at this in a similar sort of way, you know, where we're looking at if the introduction of a Bitcoin ETF does come about,
04:42then this could similarly open up interest to a broad range of investors, particularly traditional investors who haven't or who have been a little bit hesitant to engage with crypto due to its volatility.
04:55And also, just the complexity of digital asset custody.
05:00And I think they will find this ETF more of an attractive avenue.
05:05So let's talk about the potential upside for Bitcoin prices.
05:10So the approval of the spot Bitcoin ETF could significantly, obviously, boost that price of BTC.
05:18Firstly, just the endorsement would offer a degree of legitimacy and a regulatory sort of vicinity to Bitcoin, which could entice more risk-averse investors into the market, driving demand and obviously by extension, bolstering the price as well.
05:38So in addition to this, the liquidity that is provided by the ETF could also ease the process of buying and selling Bitcoin, potentially attracting more participants to the market.
05:49The more participation generally means more capital inflows, which could also positively drive up the price of Bitcoin.
05:57Moreover, you know, the increased accessibility and exposure could also lead to a higher adoption rate of BTC, which also contributes to the mainstream acceptance of this asset class, potentially also boosting the price.
06:15But, you know, with every upside, we have to talk about the downside.
06:19OK, so what's the potential downside?
06:21You know, if ETF is approved, this could also, you know, aside from bringing all those benefits, it also could bring these downsides, you know, could lead to an increased price volatility situation, especially in the short term.
06:38When if once it's out, market participants will be responding to the new trading instrument, of course, additionally, while an ETF would make Bitcoin more accessible to institutional investors, it could also make the market more susceptible to manipulate manipulation and speculative trading.
06:58You know what the Wall Street gang does.
07:01OK, this could lead to a drastic price swings as well.
07:05Well, and over the long term, if Bitcoin becomes largely viewed as a speculative asset rather than a store of value, this could also harm its proposition.
07:15I'm talking about BTC here at this point.
07:18So, you know, in the global context of a Bitcoin ETF, obviously, the impact of this ETF has been relatively positive.
07:26In Canada, for instance, where multiple Bitcoin ETFs have been approved since 2021, the price has seen a general upward trend.
07:34All be it, obviously, typical to what is going on across the board in the market cycle.
07:43But what it does suggest is that at least this Bitcoin ETF could actually also just positively sort of affect a price.
07:54So, at the end of the day, the approval of the ETF in the US, like, you know, as it's proposed by firms like BlackRock, it's not the first, by the way, we can talk about other firms that have tried to do this before, Grayscale, etc.
08:07But, of course, everybody knows that BlackRock is the big dog in this whole situation, having had so many of the ETFs approved and only, I think, one historically that hasn't gone their way.
08:21But, obviously, based on this historical evidence and the mechanics of ETFs, you know, the approval could trigger a rise in the price of BTC, driving demand, enhancing liquidity, also just fostering greater legitimacy of the assets in the markets.
08:38It's also crucial, though, to just recognize that the development could also lead to some other new risks, market manipulation by whales.
08:47And, you know, with all these financial decisions, you know, you, if you are a potential investor, you should definitely carefully weigh all of these risks before you make any decisions to base your purchase of BTC sort of based on this idea that there will be an ETF which will likely drive up the price.
09:10Let me know what you guys think. I've been getting a lot of people asking me about this.
09:13I just thought I'd make a quick video just to give you my opinion on the whole situation.
09:20What I do think, ultimately, is, at the end of the day, we need the markets to mature.
09:25And I think it's a natural progression that the more adoption, the more, you know, we hit that exponential growth curve in terms of just people really acknowledging and recognizing the value proposition of Bitcoin.
09:40Bitcoin, we are going to end up getting institutions and big capital market money players coming into the space.
09:49What you need to do is to sort of weigh out, you know, where you stand if you're willing to take the risk investing in Bitcoin on the long term.
09:57If you do understand the value proposition, if you do want to learn more, rather go to Decentralized.News, which is our main site.
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10:55So let me know what you guys think.
10:57I will be back with another one very soon.
11:00Make sure you leave a comment if you want me to talk about anything else that, you know, you are really just wondering or, you know, trying to understand in these crypto markets.
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11:30All the links are in the description.
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