ETF Revolution: How Spot Bitcoin ETFs are Reshaping Crypto Markets

Yesterday, January 10, marked a significant milestone in the cryptocurrency world as the Spot Bitcoin Exchange-Traded Funds (ETFs) received approval in the USA. This development, already a part of other countries' financial landscapes, promises to democratise Bitcoin access to a broader audience in the U.S.  

Interestingly, in the wake of this news, Ethereum, not Bitcoin, emerged as the bigger winner in terms of price gains. This article delves into the reasons behind this trend and explores the implications of the Bitcoin ETF. 
 

Understanding Spot Bitcoin ETFs 
 

A Spot Bitcoin ETF differs fundamentally from the existing Bitcoin ETFs in the market, which are based on Bitcoin futures traded on regulated exchanges. The current ETFs offer indirect exposure to Bitcoin prices by speculating on its future value, a method that, while effective, isn't optimal.  

The newly approved Spot Bitcoin ETFs, managed by custodians like Coinbase, bridge this gap by enabling direct investment in Bitcoin. Investors with standard accounts at online brokers and banks can now directly invest in Bitcoin's market performance via the ETF, increasing efficiency and market correlation. 
 

The Journey to Approval 
 

The road to the approval of Spot Bitcoin ETFs was not straightforward. The U.S. Securities and Exchange Commission (SEC) had previously rejected such ETFs. However, Grayscale, an ETF provider, successfully challenged the SEC's decision, leading to the approval and subsequent issuance of these spot ETFs. Another 10 ETF providers were also approved. Trading in these ETFs is set to commence today, January 11, Thursday. 
 

Bitcoin's Muted Response 
 

Contrary to expectations, Bitcoin's price saw only a modest increase of 1.2% following the ETF announcement. This subdued response can be attributed to the market's anticipation of Bitcoin's inclusion in spot ETFs, a topic widely covered in financial reports and analyses, including our Q1 outlook. As the ETFs begin trading, the potential increase in Bitcoin flow might drive up its price, positively affecting the broader cryptocurrency market. 
 

Ethereum's Unsurprising Surge 
 

Ethereum (ETHUSD) on the other hand, saw a significant price jump of 10.3%. This increase is primarily due to investors' anticipation of Ethereum-based ETFs.  People are now buying more ETH in anticipation of ETH-based ETFs, similar to the increased demand of BTC a few months prior. 

The Ethereum network, likened to an operating system like Windows, supports the development of a myriad of applications and processes millions of transactions daily. Despite its high transaction costs and emerging competitors like Solana, Ethereum remains the most established platform and will likely be the next in line for  ETFs. This prospect has driven investor interest and buying activity, anticipating future price rises. 
 

ETHUSD Technical outlook 
 

In November 2023, ETHUSD leapt out from a 546-day-old ascending triangle pattern. The pattern has a target of $3000 per coin. Hence, the chart patterns suggest at least another 13.88% move higher. As we head into the end of Q1, talks will also centre on the Bitcoin halving event, which typically lifts prices.  
 

The short-term levels to watch are the upper end of the smaller rectangle pattern triggered yesterday at $2430, the psychological level of $2500, and $2300. I suspect traders not long will consider turning bullish at these levels. The longer-term trend will remain upward as long as we trade above $2167. 

Conclusion 

The approval of Spot Bitcoin ETFs in the USA is a landmark event for the cryptocurrency market, offering direct Bitcoin exposure to a broader investor base. While Bitcoin's price reaction was tepid, likely due to pre-anticipation, Ethereum emerged as a significant gainer, driven by expectations of its ETFs. The cryptocurrency market is poised for exciting developments as these ETFs begin trading, potentially influencing Bitcoin's and other digital currencies' futures. 
 

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