Coinbase Insights Uncovers the Dual Nature of Bitcoin ETFs in 2024
The upcoming launch of Bitcoin exchange-traded funds (ETFs) in the U.S. is expected to bring about two major challenges, as outlined by Coinbase researchers in a recent podcast.
Insights from Coinbase Researchers
In his 2024 cryptocurrency market forecast report, David Duong, head of institutional cryptocurrency research at Coinbase, stated that the cryptocurrency market capitalization has more than doubled this year, indicating the end of the “crypto winter.” Duong believes that the industry should focus on developing a reliable and innovative cryptocurrency ecosystem.
Duong predicts that institutional investors will continue to focus on Bitcoin (BTC) in early 2024. Factors such as the upcoming BTC halving, changes in U.S. interest rates, and concerns about commercial real estate may cause the price of BTC to rise.
Bitwise predicts that a spot Bitcoin ETF could be the most successful ETF launch ever. However, Duong sees the challenge of sourcing Bitcoin as a positive sign, despite the high demand. He also expects BTC to outperform traditional asset classes. Duong highlights two potential impacts of the approval of a BTC spot ETF in the U.S.: it could lower the investment threshold and attract more institutional investors as cryptocurrency regulations evolve.
No Risk, No Gain!
The first concern revolves around a potential shortage of “regulated” Bitcoin supply needed to support the ETFs. Institutions responsible for the ETFs may struggle to acquire enough Bitcoin from regulated sources due to overwhelming demand, raising questions about their ability to meet the necessary Bitcoin requirements.
While the increasing demand for Bitcoin is positive, Duong points out that the market must consider the shortage of Bitcoin from regulated channels. Sutton also highlights the second risk of the “basis trade,” a popular institutional trading method. This method takes advantage of the price difference between Bitcoin’s spot price and futures contracts. The profitability of the basis trade has increased to 20% in recent weeks due to the rise in spot Bitcoin and futures trading volume.
However, the launch of spot ETFs that offer institutional investors direct exposure to Bitcoin could significantly narrow the basis. This narrowing spread could greatly reduce the profitability of the basis trade, affecting its appeal among institutional investors.
SEC’s ETF Prospects and Grayscale’s Move, Full of Surprises?
Currently, there are 13 pending applications for spot Bitcoin ETFs with the Securities and Exchange Commission (SEC). Analysts predict that approval could come as early as January 10, with Bloomberg’s Eric Balchunas and James Seyffart estimating a 90% chance of approval.
On the other hand, Seyffart’s latest update revealed a surprise twist from Grayscale. The crypto giant is advocating for in-kind redemptions as a better alternative to cash creation. Why? Because it could make life easier and cheaper for ETF issuers. A smart move, indeed.
As the crypto community awaits potential ETF approvals, these highlighted risks could have a significant impact on Bitcoin markets and institutional trading strategies, leading to a cautious outlook among market participants.
Tags: Bitcoin ETF