Written by: Chain Research Society
This article is a collection of the ETF series "Predicting the time when the Bitcoin spot ETF will be approved and the bull market will start", "What will happen if the Bitcoin spot ETF is approved? Will the big bull market come?"
The content is relatively long. For your convenience, I put the conclusion at the beginning. I suggest you save it and forward it so that we can witness the historical process of the approval of Bitcoin spot ETF together in the next six months.
1. Predicting the time of ETF approval and bull market start
Bull Market Script Prediction
Based on the time when the last round of Grayscale Trust was passed, I think the most likely scenario at present is:
The Bitcoin spot ETF application is approved in January 2024 (the Federal Reserve no longer raises interest rates or the market has no expectation of raising interest rates);
The Bitcoin spot ETF will come into effect in April 2024 (before the Bitcoin halving, it will help attract funds);
The Bitcoin bull market officially starts in July 2024 (after adjustments after halving and expectations of monetary easing are realized in the market);
In September 2024, the Federal Reserve will enter a cycle of interest rate cuts and implement a monetary easing policy. (Once the expectation of interest rate cuts is released, the risk market will immediately realize it, 1 to 2 months in advance. We can refer to the prerequisite indicator of GDP>CPI).
Why do we judge that the bull market will officially start around July, not when the Bitcoin spot ETF takes effect? Because we usually experience a wave of adjustments 2-3 months after the halving, instead of starting immediately. Taking into account the current macro market's expectations of a rate cut cycle, the time is set in July.
Review of the 20-year bull market starting point: Grayscale GBTC Trust’s journey
November 2019: Grayscale submitted a registration application for the GBTC Trust Fund to the SEC;
January 2020: Grayscale GBTC Trust is approved and registered by the SEC, becoming the first digital asset tool that meets the standards of the U.S. Securities and Exchange Commission;
April 2020: Grayscale Bitcoin Trust GBTC officially came into effect and its scale expanded rapidly. The three arrows also grew rapidly with the help of GBTC's arbitrage;
In 2020, the Grayscale bull market alone brought more than 10 billion US dollars of incremental funds to the cryptocurrency circle, and the incremental funds in the total market may be in the hundreds of billions.
The GBTC secondary market premium rate was once as high as over 30%, and Grayscale did not continue to increase its holdings of BTC after February 2021.
Previously, Grayscale held 654,885 BTC, with an estimated cost of US$8.931 billion, and an average cost of only about US$13,700.
Possible starting point and incremental funds for this round of bull market
In 2020, Grayscale used 10 billion US dollars to bring about hundreds of billions of incremental funds to the market. In 2021, the total market value of the crypto market reached a peak of 3 trillion, which is about 30 times the 100 billion in 2019.
If the same bull market goes on again, the inflow of funds must be over 100 billion. BlackRock's application for Bitcoin ETF is considered to be a necessary condition for the next bull market. It will take about half a year for the ETF to be actually approved (Grayscale applied in November 2019, it took effect in April 2020, and Bitcoin was halved in May 2020).
Then the incremental funds of ETF alone will exceed the current fund size of Grayscale ($25.5 billion), but this is not enough. Another necessary condition for a real bull market is that the market has sufficient monetary liquidity. After the Bitcoin spot ETF is passed, it is expected to bring hundreds of billions of dollars of liquidity to the crypto market, and the increase in total market value will be at least trillions of dollars. Then the total market value will also exceed the world's highest-valued company (currently Apple)
In summary, there are three necessary conditions for the start of the next bull market.
SEC approves spot BTC ETF
The next Bitcoin halving
Monetary easing and excess market liquidity
Finally, let’s make a summary of Bitcoin spot ETF
Bitcoin spot ETF application approved in January 2024 (Fed will no longer raise interest rates)
Effective April 2024 (before Bitcoin halving)
The Bitcoin bull market officially starts in July 2024 (after adjustments after halving and expectations of monetary easing are realized in the market)
In September 2024, the Federal Reserve will begin to enter a cycle of interest rate cuts and implement a monetary easing policy. (Once the expectation of interest rate cuts is released, the risk market will immediately realize it, 1 to 2 months in advance. We can refer to the prerequisite indicator of GDP>CPI)
The approval of the Bitcoin spot ETF will bring hundreds of billions of dollars of liquidity to the market
2. What will happen if the ETF is approved? Will there be a big bull market?
I referred to the history of gold ETFs in the United States to determine what would happen if Bitcoin spot ETFs were approved and came to the following conclusions (for reference only):
1. The market has continued expectations before the Bitcoin spot ETF is approved, which can be regarded as a positive
2. Bitcoin spot ETF will still have a small sprint after approval
3. Soon after the Bitcoin spot ETF starts trading, it will experience a large drop after reaching the top, and may even fall below the price before the ETF was approved.
Next is a rational analysis: Will the big bull market come because of the approval of the Bitcoin spot ETF?
If the Bitcoin spot ETF is approved now, I don’t think it’s good news after an overall analysis. Because the approval is more about influencing market sentiment and driving on-site funds to affect prices. Since the world economy has not yet recovered and monetary policy is in an extremely tight state, it is still difficult for funds to continue to flow in. Of course, it is possible to maintain high-level fluctuations, but it will not last long. We cannot expect the currency circle to have an independent market. The probability of this is very small. In addition, it is too much of a loss for such a heavy positive news in a bear market. In a bull market, it can rise by 100%, but in a bear market it may only rise by 30%. Let’s take a look at the performance of the U.S. stock market in the near future. If the U.S. stock market falls, there is basically no hope. Based on the current information, I don’t think the approval of the Bitcoin spot ETF will directly start a big bull market.
Looking back at the process of gold ETF approval
In March 2003, Australia launched the world’s first gold ETF
In October 2004, the SEC approved the first gold ETF in the United States, GLD
In November 2004, the US gold ETF GLD officially took effect and began trading.
The economic environment and monetary policy at the time
Economic Environment: In 2004, the macroeconomic environment in the United States was relatively stable. At that time, the U.S. gross domestic product (GDP) showed a growth trend, the unemployment rate was relatively low, and the inflation rate was moderate. Although there were some economic challenges, the U.S. economy was not in a state of crisis.
Monetary policy: In 2004, the Federal Reserve implemented a relatively loose monetary policy. The Fed gradually raised interest rates (from 1% to 1.75% in 2004), but short-term interest rates remained relatively low. The loose monetary policy created support for gold's performance, as gold is often seen as a safe-haven asset that hedges against inflation and currency depreciation.
Through the historical performance of gold
Gold saw a sharp rise after the first gold ETF was approved and continued until US ETFs began trading.
US gold ETF GLD continues to sprint slightly after SEC approval
Soon after the U.S. gold ETF began trading, the market fell by about 9% in the next two months, falling below the price at which the ETF was approved.
The passage of gold ETFs allowed more traders to invest through ETFs without the need to keep metals and custody them in banks. In the following years, more funds entered the market, and the financial crisis in 2008 pushed gold prices to $1,000.
The History of Bitcoin Spot ETFs
In February 2021, the world's first Bitcoin ETF was approved in Canada. BTC hit a high of 65,000 in the following two months and then began to fall, during which time it experienced the 519 incident.
In October 2021, the first Bitcoin futures ETF was listed in the United States. After sprinting to 69,000 for more than a month, it began a year of decline.
In July 2023, BlackRock, one of the world's largest asset management companies, began to apply for a Bitcoin spot ETF. The price reached a high of 31,800 that month and then began to fall.
The current application status of Bitcoin ETF is illustrated by the chart from Odaily@OdailyChina
Current economic environment and monetary policy
Economic environment: The U.S. macroeconomic situation is not stable in 2023, and it experienced a banking crisis at the beginning of the year. The inflation rate is high, the weak GDP growth in the U.S. has not completely escaped the recession trend, the unemployment rate is relatively low, and the long-term and short-term bond interest rates are inverted. The economy is facing economic challenges. Although the Federal Reserve wants a soft landing, it has not yet escaped the crisis state.
Monetary policy: The interest rate hike and balance sheet reduction implemented by the Federal Reserve in 2023 are in a state of monetary tightening. In order to control inflation, an extremely aggressive interest rate hike policy was implemented. The Federal Reserve interest rate has reached 5.25%. It has not stopped raising interest rates, but it is nearing the end. The market expects a rate cut in September 2024.
The approval of the Bitcoin spot ETF will allow tens of millions of new investors and traders to invest through ETFs, and will further increase the legitimacy of Bitcoin. More funds will surely enter this market in the future.
summary
The previous article mentioned three necessary conditions for the start of the next bull market:
1. SEC approves spot BTC ETF
2. The next Bitcoin halving
3. Monetary easing and excess market liquidity
For now, the time is not right, but I will adjust my judgment based on market information and macro changes in the future, so don’t forget to follow me @lianyanshe. Let us witness together the historic moment of the approval of the Bitcoin spot ETF and the next round of magnificent bull market.
