Significantly, Galaxy Digital projects about $14.4 billion inflow into Spot Bitcoin exchange-traded funds (ETFs) within the initial year of their issuance. As it stands, traditional investment channels like trusts and futures already manage over $21 billion in value. However, the influx of capital into these new financial products could escalate to $27 billion in the second year and reach up to $39 billion by the third year. Moreover, Galaxy Digital states that these inflows could lead to a 74% increase in Bitcoin prices in the first year alone.
The inadequacies of current investment products
In a research note, the financial advisory firm also pointed out that existing investment avenues come with considerable drawbacks. Specifically, high fees, limited liquidity, and tracking errors restrict these investment products. Consequently, they remain inaccessible to a wide swath of investors, including a significant portion of wealth currently managed through different channels. Spot Bitcoin ETFs, on the other hand, offer a more inclusive investment vehicle. These financial products will likely attract traditional funds and banks, many of which already maintain a strong history of customer protection and diversified investment offerings.
The United States’ wealth management industry appears to be the most feasible and direct market for these ETFs. Assets managed by broker-dealers, banks, and Registered Investment Advisors (RIAs) collectively amount to an astounding $48.3 trillion as of October 2023. Besides, the note from Galaxy Digital emphasizes that an approved Bitcoin ETF would enable a broad range of investors to gain direct Bitcoin exposure. Additionally, the financial instruments are expected to offer greater efficiencies, especially concerning fees, liquidity, and price tracking. Interestingly, the high number of ETF applicants, currently standing at 12, could lead to competitive fee structures, enhancing their appeal.
The potential for rapid market movement due to these Spot Bitcoin ETFs was already demonstrated last week. A rumor led to a quick 10% surge in Bitcoin prices within a matter of hours. Moreover, the revelation of BlackRock’s proposed Bitcoin ETF caused the cryptocurrency to gain an additional 12% this Monday. Hence, it seems reasonable to assert that the anticipation surrounding these financial products is not only high but could also introduce an unprecedented level of volatility and liquidity into the market.
The U.S. Securities and Exchange Commission (SEC) is currently examining applications from multiple key players in the financial industry. These include Grayscale, 21Shares & Ark, BlackRock, Bitwise, VanEck, WisdomTree, Invesco, Galaxy, Fidelity, Valkyrie, Global X, Hashdex, and Franklin. Given the array of applicants, it’s evident that the interest in Spot Bitcoin ETFs is not limited to niche financial entities but involves a broader range of traditional investment firms.
