Most economic indicators in most countries of the world are going through a time of tribulations, so it will come as a surprise to most that there is one avenue that is yielding higher returns than anybody could have expected. The cap for Bitcoin rose higher than $52,000 this week for the first time in over two years. The growth trends have stalled slightly for now, but experts are confident that this is only indicative of a more sustained growth trend in the weeks to come. Current forecasts suggest that Bitcoin is set to rise to a cap of $57,500 in the next period of growth.
Bitcoin is the most popular cryptocurrency in the world—before it first tripled in value in November of 2022. 2022 was a year of crisis for most coins, triggered by the meltdown of the FTX cryptocurrency exchange platform. This crisis would go on to create liquidity issues for many other cryptocurrency firms. Bitcoin quickly stabilized itself, and showed steady growth in 2023 however, which incentivized many investors to make a profitable, and credible addition to their portfolio. The increase in investor interest is likely due to a variety of reasons. One is of course the halving that will take place in April 2024—reported on earlier. This halving will result in the block (mining) reward falling from 6.25 to 3.125 bitcoins. Another factor is the SEC approval of some investment companies to offer ‘spot bitcoin’ in exchange-traded funds.
Spot Bitcoin is just one category of Bitcoin ETF. It is a type of exchange-traded fund that exposes investors to the market price of Bitcoin without any mediation. The ‘spot’ the term refers to is the market or current price of the underlying asset of the fund: the Bitcoin. This means that Bitcoin exchange-traded funds have Bitcoins as the basis for the fund. A spot Bitcoin ETF therefore depends on a close monitoring of the real-time price of the asset to ensure that it enjoys a fair and open market as a financial instrument.
The SEC validation will make investing in Bitcoin more accessible to Main Street investors. This is because the SEC approval allows them to engage in cryptocurrency trading without actually owning the digital asset directly. In a statement on the SEC’s website, the Commission’s Chair made it clear that the agency was being extremely cautious in its decision to do so.
“While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin. Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto”.
The ensuing enthusiasm has succeeded in driving the asset’s market capitalization above $1 trillion for the first time in a long time. The rise in value following the SEC’s announcement amounts to 13% since January of this year alone.
The SEC gave its approval to 11 spot Bitcoin exchange-traded funds/products. These include the following.
- ARK 21Shares Bitcoin Exchange Trade Fund (ETF) (ARKB)
- Bitwise Bitcoin ETF (BITB)
- Fidelity Wise Origin Bitcoin Trust (FBTC)
- Franklin Bitcoin ETF (EZBC)
- Grayscale Bitcoin Trust (GBTC)
- Hashdex Bitcoin ETF (DEFI)
- Invesco Galaxy Bitcoin ETF (BTCO)
- iShares Bitcoin Trust (IBIT)
- Valkyrie Bitcoin Fund (BRRR)
- VanEck Bitcoin Trust (HODL)
- WisdomTree Bitcoin Fund (BTCW)
Many of these issuers reduced or completely waived spot bitcoin ETF fees before the SEC issued its formal approval in an attempt to attract investor interest. And interested they were, as the climbing prices are directly indicative of the demand pushing them.
The SEC’s approval has been a long time coming—since 2013. The process was first initiated when a company affiliated with the Winklevoss twins submitted an application to the SEC to create a financial product for the crypto space. The Winklevoss twins are the co-creators of crypto exchange firm Gemini. Although this application would go on to get rejected, it set the wheels that would eventually create spot Bitcoin ETFs in motion. The Bitcoin ETF based on futures products was the first to gain approval from the SEC, in 2021. The SEC however was slow to approve Bitcoin ETF products into the open market, so much so that one firm that found its product blocked sued the SEC. The Court of Appeals for the Washington, D.C. circuit deemed that the SEC had failed to provide sufficient reasoning for blocking Grayscale Investments’ conversion of their Grayscale Bitcoin Trust into a listed ETF.
The highest market cap that Bitcoin ever reported peaked at $69,000 in 2021. The swings in value that followed however reinforce the narrative of high risk that always follows high rewards. Nevertheless, the climb in cryptocurrencies is being followed by rises in stocks of exchange firms such as Coinbase, which hit a high of $160 per share. In a similar vein, Bitcoin mining companies such as Riot Platforms and Marathon Digital Holdings also climbed up by 9% and 12% respectively. Despite the current stall, it appears as if traders believe that it is yet to reach its full potential. The current market bet is that the market cap will climb over $70,000 by the end of June. Some are even taking the position that it will trade well over $100,000 this summer. What will eventually end up happening is only open to more risks than most financial instruments on the market.
(Theruni M. Liyanage)