The introduction of spot Bitcoin (BTC) exchange-traded funds (ETFs) in the United States has significantly altered the landscape of the cryptocurrency market. As highlighted in the Kitco article, these ETFs have made it easier for a wide range of investors, including retail investors, pension funds, and large institutional firms, to gain exposure to cryptocurrencies in a familiar and accessible manner.
According to an article by Jordan Finneseth for Kitco News published on 10 April 2024, Hong Kong is preparing to launch its own spot BTC ETFs, which could further increase the already record-breaking demand for these investment vehicles. Yves Longchamp, Managing Director and Head of Research at AMINA Bank (formerly known as SEBA Bank), who was interviewed by Kitco News, believes that the growth of Bitcoin and the broader crypto market is just beginning.
Longchamp emphasizes that the spot BTC ETFs launched in the U.S. on 11 January 2024, have opened doors to new investors, attracting fresh capital to the Bitcoin market. He also points out that the rise of Bitcoin has indirectly benefited other cryptocurrencies, such as Solana (SOL) and Ether (ETH), which have seen significant price increases.
According to the Kitco report, Longchamp believes that there are now two distinct ways to invest in cryptocurrencies: either as an asset class for portfolio diversification, where ETFs provide a convenient solution, or as a new paradigm, where investors buy, hold, and transact with their crypto directly. He notes that once investors enter the crypto universe, they can engage in activities like decentralized finance (DeFi) or international payments, which are not possible with ETFs.
The Kitco article highlights the substantial inflows into the newly issued spot Bitcoin ETFs, which have amassed a combined $12.37 billion in assets under management since their launch.
Longchamp attributes this to a growing interest from investors looking to access this new asset class, reflecting a generational shift and a broader recognition of the need for a native digital currency in the digital age.
To accommodate the increase in flows and volumes, Longchamp emphasizes the need for a strong connection between traditional finance and the emerging crypto financial system, as well as an efficient system for trading and settling transactions. He also points out that ETF providers will increasingly demand regulated custody and trading services, seeking reliable infrastructure and underlying assets that meet KYC and AML requirements.
With the upcoming Bitcoin halving event expected to occur between April 19 and 20, the Kitco report shifts focus to the potential impact on Bitcoin’s price. Longchamp notes that crypto markets have historically performed well after Bitcoin halving events, with Bitcoin’s price typically following a rising trajectory for 350 to 600 days after the halving.
The Kitco article includes insights from an AMINA Bank report, which suggests that while each halving cycle is unique, there are noticeable similarities. The AMINA report apparently indicates that the current cycle exhibits similarities to the previous three halvings and that the approval of 11 spot Bitcoin ETFs in the US in January 2024 has further fueled expectations of continued institutional demand.
Longchamp believes that the ability of these spot Bitcoin ETFs to reduce the typical 50-80% correction following a bull market top depends on who owns the ETFs. He suggests that if institutional investors hold them as part of their strategic asset allocation, they will buy Bitcoin during significant price dips to rebalance their portfolios, potentially limiting drawdowns. However, he notes that Bitcoin and cryptocurrencies are not yet widely included in strategic asset allocations.
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