The U.S. Securities and Exchange Commission (SEC) might approve the first spot Bitcoin ETF on January 10, 2023, which marks the deadline for approving the first applicant—a partnership between ARK Investment and 21Shares.
Should the SEC approve this first ETF, it is likely that subsequent approvals will follow, as establishing a precedent often paves the way for consistent policy application.
There are 11 applicants waiting for approval to launch spot Bitcoin ETFs, and this competition has sparked a price war, leading most applicants to slash their annual fees.
The lowest fee is offered by Bitwise at 0.24%, which includes a fee waiver for the first six months. ARK 21Shares and VanEck are close behind with fees of 0.25%.
These fees are competitive, aligning with the average ETF fee of 0.24% as reported by Vanguard. If approved, these ETFs would allow investors to conveniently gain exposure to Bitcoin through their regular brokerage accounts, avoiding the need for separate crypto trading accounts.
This could result in an influx of funds from investors who have not yet ventured into cryptocurrencies, steering Bitcoin towards mainstream acceptance.
The anticipation of this approval has already propelled Bitcoin to a 150% return in 2023, with the currency reaching a two-year high of $47,000 just yesterday.
However, there’s an irony at play: Bitcoin, originally touted as the savior of a flawed financial system, now finds itself seeking acceptance within the very system it aimed to disrupt.
It seems that the prospect of substantial returns is overshadowing the original ideology. While assets may evolve, human greed remains the same.
Investors may need to temper their expectations due to a potential ‘buy the rumor, sell the news’ effect. This means that even if the ETFs are approved, the initial excitement might quickly dissipate as some investors begin to take profits, thereby increasing selling pressure and potentially causing the price to fall.
If the ETFs are not approved, the price could drop even more sharply.
Although a correction is possible, crypto enthusiasts can still look forward to the Bitcoin halving event projected to happen around April 2024. This event, during which the reward for Bitcoin mining is halved, effectively reduces the number of new coins entering the network. Historically, such halvings have led to surges in Bitcoin prices, as illustrated in the table below.
As such, it’s conceivable that Bitcoin’s prospects hinge on more than just the ETF approval.
Although I cannot provide financial advice on whether to buy Bitcoin, a prudent strategy to consider is the ‘barbell’ approach. This involves allocating the majority of your investments to stable, conventional, and long-term assets, while dedicating a smaller portion to more speculative ventures like cryptocurrency. This way, even if the cryptocurrency investment doesn’t pan out, the bulk of your portfolio remains largely secure.
