The Bitcoin Spot ETF is going to have a major impact on the crypto markets. Here's everything you need to know.

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Bitcoin Spot ETF and the Future of BTC🪙

It happened team. The Spot Bitcoin ETF application has been approved. 11 of them.

This has been a 6 year battle and the day has finally come. There are a lot of positives that come from this, but also some serious potential negatives. We’re going to talk about it all.

Why? because the number one way to protect your liquidity is to be informed. So let’s get into it.

First things first, wtf is a Spot Bitcoin ETF?

In a nutshell, it’s a fund managed by one of the 11 approved asset managers (listed below) where you can invest in, without actually holding, Bitcoin.

The fund holds Bitcoin and deals with the custody technicalities that are a huge barrier for so many Web2 normies.

All investors have to do is buy a share of the fund and watch the price rise and fall proportionally with the movement of $BTC.

How Exactly Does Buying and Selling Shares in a Spot ETF Affect the Price of BTC?

Here is the crux of it. Huge amounts of liquidity can enter and exit the Bitcoin Market through these ETF’s, so understanding how it works highlights how price action will be affected.

This is a bit higher level, so feel free to skip ahead to the next section where we cover some popular pro’s and con’s of this decision.

Assuming a share in an ETF is 50$, let’s dive into the flow:

1. Net Asset Value (NAV): The price of an ETF share is typically based on the NAV of the fund, which is the total value of all the assets held by the ETF (in this case, Bitcoin), minus any liabilities, divided by the number of outstanding shares (the number of shares held by investors).

2. Determining Bitcoin Holdings: Let's say the ETF currently holds 100 Bitcoins, and the current market price of Bitcoin is $50,000. The total value of the ETF’s assets would be 100 Bitcoins * $50,000/Bitcoin = $5,000,000.

3. Calculating NAV: If the ETF has 100,000 shares outstanding, the NAV per share would be $5,000,000 / 100,000 shares = $50/share.

4. Buying ETF Shares: When you buy a share of the ETF for $50, you are buying a portion of the fund's total Bitcoin holdings. Your purchase doesn't directly buy Bitcoin but contributes to the overall pool of money the ETF uses to invest in Bitcoin.

5. Impact of Investment Flows: If more investors buy into the ETF, the fund manager will use the incoming funds to purchase more Bitcoin, increasing the fund's total Bitcoin holdings. This is necessary to ensure that the NAV per share accurately reflects the value of Bitcoin.

6. Market Price vs. NAV: It’s important to note that the trading price of ETF shares on the stock market may slightly differ from the NAV due to supply and demand dynamics, although ETFs typically trade very close to their NAV.

7. Redemption and Issuance: If investors sell their ETF shares, the fund might sell some of its Bitcoin holdings to pay them. On the other hand, if more shares are issued due to high demand, the fund will buy more Bitcoin.

In a nutshell, the more popular these funds are, the more BTC will be bought by funds, which can directly boost the price of Bitcoin.

What a great segue into the pro’s and con’s of this announcement.

Pro’s of the Bitcoin Spot ETF:

Here are some of the top arguments for these funds.

1. Increased Legitimacy and Adoption: There’s no denying it, this is massive validation for Bitcoin in the traditional financial market. Having these funds invest BILLIONS on chain shows that Bitcoin is here to stay and opens the doors to millions of investors, particularly the >60 year old demographic.

2. Institutional Investment: Spot Bitcoin ETFs provide a regulated and easier path for institutional investors to gain exposure to Bitcoin. This could lead to increased demand and potentially higher prices, benefiting our bags.

3. Market Liquidity: The influx of investments through ETFs can increase the liquidity in the Bitcoin market, which can be argued, will stabilize price action by buffering large dumps on the market.

4. Broader Market Interest: As Bitcoin gains more mainstream exposure through ETFs, it could spark increased interest in the broader crypto market, potentially benefiting the entire ecosystem. More liquidity may mean more opportunity.

Sounds pretty awesome? Here are the Con’s:

1. Market Manipulation Concerns: These are some of the richest, most influential and powerful entities who have a history of spreading misinformation through media and front running moves.

2. Price Volatility: While increased investment can drive up prices, it can also lead to greater volatility, especially if large institutional investors decide to move in or out of the market.

3. Regulatory Risks: The involvement of regulatory bodies in overseeing Bitcoin ETFs could lead to more regulatory scrutiny of the entire cryptocurrency space, which will likely favor the powerful.

4. Detachment from Crypto Principles: Some purists argue that investing in Bitcoin via an ETF strays from the original principles of cryptocurrency, like decentralization and direct ownership.

5. Impact on Decentralization: If a large enough portion of Bitcoin’s market cap is held by a few large ETFs, this could raise concerns about centralization in what is fundamentally meant to be a decentralized asset.

Also, trading these ETF’s is restricted to trading hours (9:30-4ESTin North America), so if large moves happen on the weekend or at night, you’re stuck bag holding.

So What’s Happening to BTC’s Price?

Great question. Let’s check it out.

I was certainly surprised to see that while Bitcoin did have a positive reaction to this news, it was seriously outperformed by Ethereum and major altcoins like Solana, Avalanche, Cardano and Polkadot.

This could mean that this news has already been priced in leading up to this announcement, and I am at least happy that this wasn't a “buy the rumour, sell the news scenario.

We can see that there has been some major volatility over the last 4 days, with large wicks in both directions.

So far price is holding over the 46k level, but let's take a look on chain to see if we can get an idea of future moves.

This chart tells us that the largest whales (holding 1000-10000 Bitcoin) are dumping, as are the smaller whales.

The moderate whales are buying though.

Not shown on this graph are the micro holders who have less than 1 BTC. They are still accumulating as well.

Historically, it's is a bearish sign when whales sell and small bag holders buy, and may suggest a short term downward move.

This metric here is a site for sore eyes. Mean Dollars Invested Age (MDIA) is an indicator that tells us when dormant wallets start to wake up (yellow line turns downwards).

This indicator is exclusive to Santiment users, and it's pretty clear that each rip in price is preceded by a dip in MDIA. If this indicator keeps on its downwards trend, it could mean bullish days ahead.

Market Value to Realized Value gives us another clue that we may see a short term reversal. When this metric spikes, it means that token holders bags are in the green and the odds of them selling for profit increases.

I'm particular, the 365 day holders are up 40%, which means this could be a top signal as they may be inclined to take profits.

So what does this all mean?

This is all suggesting that a short term dip in Bitcoin's price may be next before continuation to the upside where we will hopefully see the full glory of this new bull run.

One thing to keep in mind, that while history often repeats itself, and likely big players like BlackRock and all of these fund managers have been present in crypto for decades….

…This cycle is fundamentally different from previous bull runs thanks to these new Bitcoin ETF’s. For the best of for the worst… only time will tell.

One thing you can count on is that we will keep you updated with all the big moves, both on and off chain.

Finally, we'll be giving away exclusive thank-you gifts to our early supporters, so be sure to invite your friends to subscribe to Growth Bytes. Link below 👇️ 

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