ETFs have been widely discussed over the past few months, and the fact that the Securities and Exchange Commission has once again delayed the date of its official ruling concerning this asset class has only contributed to the hype. Much of the Bitcoin price today, with its considerable growth since the beginning of the year, is the direct result of anticipating the ETFs and all the ways in which they could help the BTC marketplace.
Most investors and analysts expect considerable growth, believing that an official ETF approval could even see Bitcoin climbing to the $100,000 level. However, there are also some who are concerned there could be some adverse effects as well, and that since the trend in favor of ETFs is so strong at the moment, they will ultimately be ignored, and investors will be unprepared to deal with them.
Self-custody issues
One of the main concerns is that spot Bitcoin ETFs will remove self-custody, potentially creating millions of unbacked coins. This is because the approval can potentially trigger some of the issues associated with the fundamental way Bitcoin was created. The ETFs track the prices, a feature that is in direct conflict with the idea of self-custody, according to some analysts. The decentralized nature of the blockchain and the fact that owning crypto mainly means being responsible for your own wallet and keys has long been in complete contrast with traditional finance.
The introduction of Bitcoin ETFs means that substantial numbers of coins could end up stored in central locations. This would allow regulators and authorities to seize them if they notice any irregularities, something that researchers see as a situation akin to Executive Order 6102 in the United States, which required all citizens to deliver most of their gold coins, bullions, and certificates before May 1st, 1933. However, it’s also important to remember one of the main benefits of Bitcoin ETFs: accessibility. Both individual and institutional investors would benefit from the added visibility the project would bring.
Withdrawals
The fact that spot Bitcoin ETFs cannot be withdrawn is another aspect that has analysts worried. The assets will be in aggregate on the ETF itself. That means there’s a possibility for unchecked issuance of “paper BTC” that is not supported by the actual crypto in any way. This is precisely how unbacked Bitcoin will be created. The movement has the potential to distort the marketplaces and impact the actual value of Bitcoin.
It would have the additional effect of placing greater influence into the hands of financial giants and other financial platforms and institutions. This is another aspect that would be in complete antithesis to the original way in which Bitcoin was created, as a decentralized network in which nobody is in charge of all the assets.
These factors have cast a shadow among some investors amid the general optimism of the market over the past few months. Regardless, regulators are still expected to come up with an official ruling in January 2024, so those planning to become involved in the market must be aware of its intricacies to make good decisions and protect their portfolios.
Joining the hype
MicroStrategy, a business intelligence company headquartered in Tysons Corner, Virginia, saw its stocks climb by 350% due to the craze surrounding Bitcoin exchange-traded funds. On December 27th, MSTR was trading at $654, up by almost 9% during the intraday. The company is very exposed to Bitcoin and involved in trading, hence the impressive stock performance. At the moment, MicroStrategy and its affiliated subsidiaries hold over 189,000 coins. That’s a combined purchase price of nearly $6 billion.
Analysis and data show that a combination of low-interest debt over a long-term period and share issuances have been used to finance Bitcoin purchases. As of the end of September, the total amount of liabilities stood at roughly $2.534 billion. The exposure to BTC has also tied the company’s balance sheet more closely to the risky nature and continuous volatility of the digital asset markets.
Top performance
2023 hasn’t been an extraordinary year for the cryptocurrency market. It was certainly not as good as in 2021 when Bitcoin climbed almost entirely undisturbed to reach its all-time high levels. However, despite what some detractors might say, BTC has remained a top-performing asset in 2023, climbing by 160%. The ETF proposals have played a prominent role, as did the fact that the next halving event is set to occur in April 2024.
Historically, prices have always climbed before and right after a halving. The fact is that 2022 has been a rather difficult year for Bitcoin, set under the influence of a bear market and crypto winter. Prices dropped significantly, ending up losing 70% of their value. Although 2023 saw periods of stagnation as well, and the middle of the year might have been quite dull for many researchers, the trend began to reverse towards the final months of the year, and the rally that occurred since then has been mostly consistent.
The bottom line
The crypto market is still changing and evolving, and while 2023 hasn’t been the best year in its history so far, it has certainly done an outstanding job reversing some of the damage of 2022. With 2024 just around the corner, many investors have already begun discussing the latest predictions and estimations of how the market will unfold over the next few months. It’s pretty tricky to determine the trends since crypto is so volatile.
Even more well-established cryptocurrencies, such as Bitcoin, are likely to fluctuate considerably. The fact that both ETFs and the next halving are expected this year has fueled positive sentiment among investors, leading them to see 2024 as potentially the best year BTC has ever experienced since its launch. However, it’s essential to remain realistic.
Like any change within the blockchain, there are likely to be more negative aspects to consider, especially regarding ETFs. Being aware of the potential drawbacks makes your choices more informed and aware, allowing you to make the best decisions that will see you receive more revenue. As always, vigilance is key.
