Why Bitcoin Soars High on ETF Hype

Why Bitcoin Soars High on ETF Hype

Time Stamp: October 25, 2023 2:41 AM

Bitcoin (BTC) briefly rose above $35,000 for the first time since May 2022, driven by speculation that U.S. regulators will soon approve a Bitcoin exchange-traded fund (ETF).

The price of BTC reached $35,086 on Tuesday, up over 17% in 48 hours. As of writing, the benchmark token had pared some of those gains and is trading 9.1% higher at $33,858, according to CoinGecko data. Bitcoin has now leaped 112% since the start of the year.

Why Bitcoin Soars High on ETF HypeWhy Bitcoin Soars High on ETF Hype
Bitcoin 7-day price ($). Source: CoinGecko

Bitcoin ETF excites market

Bitcoin’s solid gains are attracting investors who are betting the U.S. Securities and Exchange Commission (SEC) is on the brink of approving an exchange-traded fund that owns bitcoin on behalf of investors in spot markets, potentially fueling demand.

This week, a federal appeals court mandated the SEC to reconsider a bitcoin ETF application from Grayscale Investments, sparking hopes it may be okayed over the next few months. The company wants to convert its Bitcoin Trust into a bitcoin spot exchange-traded fund.

Excitement grew as the world’s biggest asset manager, BlackRock, updated its bitcoin ETF filing, and major investors like Cathie Wood highlighted the SEC’s more positive tone and engagement with the industry. Coinbase also told CNBC that it was confident the fund would be approved.

A bitcoin ETF will generally track the price of BTC, allowing investors to gain exposure to the digital asset without actually having to buy it directly themselves. Investors may tend to lean towards ETFs because, among other reasons, it’s an easier way to get into bitcoin.

On Monday, bitcoin climbed 10% to about $31,000, its biggest daily gain since March 14. The increase helped lift the rest of the market, with other leading crypto assets such as ethereum (ETH), ripple (XRP), and cardano (ADA) all rising by between 3% and 4% each.

The ETF enthusiasm is not only lifting the value of bitcoin but also the value of other publicly traded crypto-related assets. Michael Saylor’s MicroStrategy, which is reportedly sitting on over $700 million in unrealized bitcoin gains, surged 12%, and Coinbase advanced 10%.

Cryptocurrency mining stocks also rose by double digits. Marathon Digital gained 12%, and Riot Platforms soared more than 14% in Nasdaq stock market trading.

Where to from here?

Bitcoin analysts are bullish about the top crypto, which has struggled since the Terra/LUNA scandal in May 2022. Alex Thornton, head of research at crypto firm Galaxy, tweeted that he expects bitcoin to rise by as much as 75% in the event of a U.S. spot bitcoin ETF approval.

Also read: SEC Won’t Approve a Bitcoin Spot ETF, Says Former SEC Attorney

“When bitcoin ETFs are approved, we think these vehicles could see a minimum of $14.4bn of inflows in year one, ramping to $38.6bn inflows in year three. At those levels, BTC could see 75% appreciation the year following approvals,” he wrote on the site now known as X.

“At its peak around $32,500, almost $20 million of BTC will need to be purchased by options dealers for every 1% move up to stay delta neutral,” Thorn added in a market report.

“The positioning implies that market makers need to buy back increasing amounts of delta as spot moves higher, which should add to the explosiveness of any move in the short term.”

Bitcoin remains 50% off its November 2021 all-time high of $69,000. But the asset has made a remarkable comeback since falling below $17,000 in 2022, when the industry was marred by issues of theft, including the high profile collapse of Sam Bankman-Fried’s FTX empire.

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