Bitcoin is wearing a new legitimacy coat thanks to the eleven spot Bitcoin Exchange-Traded Funds (ETFs) approved earlier this year, following years of resistance from the Securities and Exchange Commission (SEC). If retailers could introduce Bitcoin to their investment portfolios outright through regular crypto exchanges or investment platforms that gave them almost complete power over their holdings and facilitated purchases and similar trades, now we’re looking at the dawn of a new era in the U.S.
Crypto enthusiasts, with you included, now find it easier to welcome the asset after determining that Bitcoin’s trading price today is good enough for such an undertaking, especially through the recently-launched spot Bitcoin ETFs or ETPs. The former doesn’t offer ownership of Bitcoin and obstructs its facilitation in purchases and payments for services and goods, but dilutes the traditionally high volatility an investor gets exposed to when buying individual Bitcoins.
As another barrier was lifted by the SEC and a new category of crypto enthusiasts is shaping up thanks to the latest method of gaining exposure to the market, the traditional volatility stemming from custodianship-based investment methods that throned a few months ago is flattening.
All sorts of aspiring Bitcoin investors, such as insurance companies, pension funds, mutual funds, financial advisors, and retail investors, have a new avenue to invest in Bitcoin. How should one expect volatility to behave after the welcoming of new crypto investment routes, and how will the latest implementations impact the asset’s price? What about the trading volume and the unfolding of the nearing halving? To grasp what’s about to come, the wider crypto community should first understand how ETFs contribute to price volatility stabilization.
New Investment Vehicle but with Matching Principles
One of the main ideas behind Bitcoin is to democratize money sustainably and securely, bidding farewell to central authorities such as the Federal Reserve and banking systems that are ubiquitous in the traditional money system. Bitcoin’s monetary policy based on algorithmic data and its decentralized mining ecosystem establishes all the norms that make this cryptocurrency a reliable asset, such as the incapability of interference with the fixed 21M BTC supply. This is where its deflationary capabilities stem from. Furthermore, those investing their money in Bitcoin can gain exposure to an asset that’s not intrinsically bound to devaluate like we’re accustomed to all the other fiat currencies worldwide. This is Bitcoin’s core perception of value and the motor to all the limited coin supply tokens in existence.
The core idea of ETFs could easily be associated with a march toward democratization in the investment landscape, as their intrinsic goal is to unchain the owner from the strings of actively managed mutual funds. The assets’ prices in the form of shares are tracked, helping trading throughout the day at lower costs and boosting the accessibility of the investment.
As ETFs contribute to money democratization and boost communities’ exposure to the highly volatile asset, Bitcoin, new market dynamics are to emerge. In part, lower volatility levels are predicted owing to their dampening potential and despite the hefty price swings the asset has lately experienced after the products’ approval.
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How ETFs Assist in Toning Down Volatility
For Bitcoin ETFs, which offer a transparent and consistent market valuation reference point, huge amassed trades minimize the effect of possible selloffs from miners’ wallets. Simply, the Bitcoin ETF-infused market regime effectively diminishes the general market volatility that’s inherent to crypto.
If to date, miners represented the primary factor in suppressing the asset’s price, now market dynamics are witnessing a shift. New options in the Bitcoin investment landscape are now available for retailers, coming to stabilize the significant fluctuation rates usually exceeding 10%. In the ETF realm, the new Bitcoin-injected vehicles disclosed the colossal appeal of a decentralized asset that’s safe from centralized dilution. $29.3B trading volume against $14.9B pressure from GBTC, short for Grayscale Bitcoin Trust BTC, has been registered across only two weeks.
Such phenomena that are bound to lead to a retracement in prices are anything but surprising, for the rising Bitcoin prices owing to the ETF hype naturally resulted in new waves of selling pressure. 88% of BTC owners broke into the profit zone in the last month of 2023, ultimately hitting 90% in February. Wherefore, GBTC investors exploited the rally and started converting their assets into cash, enforcing a selling pressure of $5.6B in value terms on the crypto’s price.
As a consequence of the introduction of ETFs and new options and derivative contracts on the whole, the market gets closer to its coming of age, which gauges more price stability. The immediate effect propagated could translate to more investors leaping and investing in Bitcoin, leading to the ripple effect that ripens the market. Plus, there’s an ongoing tendency for current money invested in GBTC to fly to the new investments. As the outflux pressure fades and influx rates grow, Bitcoin’s price is bound to be stabilized by a new and consistent fund stream into ETFs.
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Unprecedented Market Dynamics Post ETF Approval
With the forthcoming halving scheduled for April and the new market dynamics established by the emergence of ETFs, some investors could be dumbfounded as to what they could expect from the industry next. This is just a normal reaction considering that no other halving has been subjected to such impactful, new factors impacting the faith of prices and investor and miner behaviors.
According to a reputable analyst on ex-Twitter, now X platform, the current bull cycle we’re evidently crossing may not be affected by anything significantly different compared to previous bull cycles preceding halvings. However, a pre-halving price retracement could occur, just like it was (and probably will be) the case with other bull cycles. The bettering Bitcoin price pushes excited investors to cash out on their assets while profits are evident instead of waiting for an outcome that involves unpredictability.
The danger zone marks prices entering the retracement area owing to the forthcoming halving. Pre-halving retracements have been observed to span the 14 to 28 days prior to the big event, so we are now approaching a very significant period in Bitcoin’s history, especially if you add the potential of impacting the whole underlying market.
This bull cycle is like no other, owing to the ETFs.
A price detour could naturally be on the horizon, just as it’s always the case before halvings and right after prices start to be impacted by the quadrennial event. The crypto community mainly sees these price retracements as dips that shake Bitcoin a bit before it keeps marching on its original upward path. This is a time of deep reflection on what to do next and how to approach Bitcoin and related investment vehicles.