Will a Spot Bitcoin ETF Cause BTC's Price to Skyrocket?

Will a Spot Bitcoin ETF Cause BTC's Price to Skyrocket?

A comparison with gold exchange-traded funds offers some clues.

sumit
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Senior ETF Analyst
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Reviewed by: etf.com Staff
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Edited by: Mark Nacinovich

The approval of the first spot bitcoin ETF in the U.S. would be a monumental milestone for the world’s most valuable cryptocurrency by market cap.

Analysts believe that such an exchange-traded fund could draw billions of dollars into bitcoin, pushing the price of the cryptocurrency much higher from here.

That raises the question: How much of an impact could the approval of spot bitcoin have on the price of bitcoin? 

It’s an impossible question to answer with any sort of precision, but it’s fair to say that, all else equal, a spot bitcoin ETF would increase the demand for bitcoin. And if some of the most aggressive estimates for spot bitcoin ETF inflows turn out to be accurate, the impact could be significant. 

Gold ETFs 

A good comparison might be gold ETFs. The first gold ETF in the U.S., the SPDR Gold Trust (GLD) gathered $3.3 billion of assets in its first year on the market.

GLD and the iShares Gold Trust (IAU), which were the only two gold ETFs with assets of any significance in those early years, registered inflows of around $43 billion in their first five years (93% of that went into GLD).

In that time frame, the price of gold nearly tripled from around $450 to $1,200. While certainly not the only factor driving the price of gold up during that time, purchases of gold ETFs likely played a part in the rally. 

Between 2004 and 2009, GLD and IAU purchased nearly 38 million troy ounces of gold, equal to 8% of total gold demand in that period.

A similar level of buying in spot bitcoin ETFs could have an even bigger impact on the cryptocurrency’s price.

When gold ETFs first launched, the “market cap” of gold—or the value of all the gold that was ever mined—was around $2 trillion, and by the end of 2009, it was around $5 trillion. 

In other words, the gold purchases by GLD and IAU represented only around 1-2% of the gold market cap.

By comparison, the market cap of bitcoin now is around $700 billion, and so $40 billion in purchases by spot bitcoin ETFs would account for a larger percentage of the cryptocurrency’s market cap (6%) based on current prices. 

The supply of bitcoin is also rising more slowly than that of gold. The total circulating supply of bitcoin is growing at a 1.5% annual rate and is programmed to continuously trend lower. Gold supply has grown at a 2% annual rate since 2004, but it has no cap.

Gold ETFs vs. Bitcoin ETFs

All of this makes it sound like the approval of the first spot bitcoin ETF in the U.S. is poised to light a fire under the cryptocurrency’s price. Will bitcoin double or triple following that approval, much like gold doubled and tripled after the launch of GLD? 

Not necessarily. While it’s certainly possible that bitcoin could continue to rally after the launch of spot bitcoin ETFs in the U.S., bitcoin is different than gold in some key ways.

The vast majority of bitcoin is held by investors and speculators who might be inclined to sell as the price of bitcoin rises. Very few people own bitcoin with the sole intention to use it in transactions or for other non-investment purposes.

In contrast, prior to the launch of gold ETFs, most gold was held in the form of jewelry by people who appreciated its aesthetic qualities. Sure, there were people who held gold for investment purposes, but investment wasn’t its only use case. 

When gold rallied after the launch of GLD, existing holders of gold didn’t increase their sales of gold substantially. 

The same might not hold true of bitcoin. 

Lasting Impact of a Bitcoin ETF

Additionally, there are no guarantees that spot bitcoin ETFs in the U.S. will gather the tens of billions of dollars of assets that many expect. And even if they do, whether that will have a lasting impact on the price of bitcoin is uncertain. 

Gold ETFs bought up 83 million troy ounces of gold during their first eight years, but have added hardly any gold in the 11 years since.

It’s conceivable that spot bitcoin ETFs could come out with a bang but then go quiet shortly thereafter, much like the futures-based ProShares Bitcoin Strategy ETF (BITO) did.

Time will tell how this all plays out.
 

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.