Money is faith but it is also a commodity. It obeys the law of supply and demand.
When the demand for any currency increases, its value increases. When demand falls, so does the price.
Specifically for Bitcoin, perhaps the main reason for the increase in interest from the wider public concerns the possibility of the U.S. Securities and Exchange Commission approving a long-awaited Bitcoin ETF (ETFs are mutual funds, which are traded during the session as a normal stock).
Analysts estimate that the game will abruptly change level with the approval of an ETF.
ETFs provide a simple and effective way to access the unknown world of cryptocurrencies. They allow investors to have exposure to digital assets without necessarily buying or owning them.
So their effect on the market has two parts.
First, it requires the purchase – from the ETF issuers – of significant quantities of cryptocurrencies. One can understand that the effect on demand, hence Bitcoin’s price, will be instantaneous.
However, even more importantly, it will bring together many people who at the moment either ignore their [cryptocurrency] existence or don’t trust them.
The Case With Gold ETF
How can we be sure? There are similar examples in the past. Since the gold ETF began trading in March 2003, its price has increased sixfold by 2011.
Why? Because it made its acquisition very easy, with minimal transaction and storage costs, even in small quantities.
After such a decision, it is almost certain that tens of billions of dollars will flow into the cryptocurrency space. This implies that the capitalization of cryptocurrencies will quickly reach its all-time highest levels, as it will be the vehicle for institutional investors.
What are the chances of announcing the approval?
According to Bloomberg, it’s never been that many. Most likely to be approved first on October 18 will be ProShare’s application.
As a reminder, Gary Gensler, chairman of the Securities and Exchange Commission (SEC), has appeared positive about giving permission to an ETF based on Bitcoin futures.
Bloomberg’s Eric Balchunas, an analyst specializing in ETFs, gives a 75% chance of it happening.
The ETF That Indirectly Contains Bitcoin
It is indicative of the SEC’s intentions that it approved an ETF called the “Volt Bitcoin Revolution“. This ETF will provide investors with indirect exposure to Bitcoin, as it will consist of 30 companies holding a significant portion of the cryptocurrency on their balance sheets.
What are they? First of all, MicroStrategy, which will make up about 20% of the value of the portfolio as well as Tesla, Square, Coinbase, PayPal, Twitter, etc.
As it is understood, the Bitcoin Revolution will not follow the path of bitcoin price faithfully. Volatility in its price will not decisively affect shares of companies such as Tesla and PayPal.