Analysts Differ in Appraisal of the Effects
On the New York Stock Exchange, trading has begun for the first Bitcoin exchange-traded fund in the U.S., Proshares Bitcoin Strategy ETF (BITO). Several analysts believe the stock market hype around this story will support a dramatic growth in prices for the first cryptocurrency and that its current value will triple. Experts interviewed by Izvestia agreed this fund’s launch speaks unequivocally of the recognition of cryptocurrency by the U.S.’s financial authorities, but as for its price, expectations aren’t as colorful.
On Tuesday, Oct. 19, as Bitcoin came close to breaking its historical record price of $63,500 per coin, trading began in the U.S. for the first ETF approved by the Securities and Exchange Commission. It is based on Bitcoin futures in the Chicago Mercantile Exchange. According to NYSE data, at the start of trading the price of one ETF share went up from its opening $40.88 and at the moment has reached $42.15.
Before the launch of the exchange-traded fund, analysts from Fundstrat, who predicted in April that by the end of the year Bitcoin might hit the $100,000 mark, made a new prognosis: Should the ETF attract a significant volume of funds from investors, its price could reach up to $168,000 per coin.
But cryptocurrency market experts interviewed by Izvestia are reluctant to make similar prognoses, at least in the near future. Aleksandr Khvoinitskiy, the chief business development officer for the cryptocurrency bank Chatex, recalls a comparable situation that already occurred in 2017-2018, when similar funds entered the market. Great hopes for the development of the cryptocurrency market were also attached to them, but Bitcoin’s price still fell.
“Since investors start trading on the hype, this will stimulate growth, but later users might not like the instrument. An outflow will begin, and after that, a decrease in each coin’s worth,” says Khvoinitskiy.
Igor Zakharov, founder of the digital ecosystem DBX, offers a similar opinion. He notes major players will enter the exchange trading with additional capital — serious investment funds for whom Bitcoin’s currently high price isn’t exactly profitable. But in a longer-term perspective, the trend of growing cryptocurrency prices will persist because of the still high potential for expanded Bitcoin demand as their flagship, notes Exante’s leading strategist, Janis Kivkulis.
“Therefore it’s perfectly possible to expect practically any figures, everything depends on the time horizon. In the five-year range, $100,000 is an altogether believable figure, but in the next three months the market might not reach this level,” warns the expert.
As for short-term prospects, Kivkulis agrees with Izvestia’s other interviewees but offers a different view on the current market situation. Despite the fact that the cryptocurrency “fear and greed index” is now at the 75-point mark of “greed,” bulls on the market are leading, which increases the possibility of a price increase above the $62,000 mark.
“But there’s a possibility that a ‘sale of facts’ could follow SEC’s approval, like it was, for example, in 2017 at the launch of futures trading on the CME, or in September of this year at El Salvador’s adoption of Bitcoin as an official currency. Such events could throw the cryptocurrency’s price back but won’t break the long-term bullish dynamic,” emphasized Kivkulis.
Recognition Is More Important than Immediate Interest
On a global scale, Izvestia’s interviewees note the launch of the exchange-traded fund reflects the relationship of American authorities to Bitcoin as a financial instrument.
According to Zakharov, it’s not only important that the SEC’s recognition of Bitcoin (without which the release of this exchange fund would be impossible) gives the entire market a positive signal against the cryptocurrency ban in China. The expert notes that the timing of the SEC decision, which the whole market was already waiting for, is extremely interesting.
“The approval happened at that moment because an implicit threat of default hung over the U.S. economy. The Federal Reserve System can’t cope with the volume of liabilities to external creditors. Consequently, a stimulation of the financial market is required to clean up the investment situation in the government,” he says.
Kivkulis notes the SEC has already been moving toward the acceptance of cryptocurrency for several years. At first cash-settled futures appeared on the CME exchange; after those, delivery futures contracts on Bakkt (the exchange of digital assets founded by the Intercontinental Exchange); and then, delivery and cash-settled options on other exchanges. So approval for the release of an ETF is a long-overdue step that should not be seen as a sensation.
But it’s important to understand that after this, different instruments will begin to appear on the market. For example, an inverse ETF of Bitcoin, which would grow in price as the actual cryptocurrency loses value, and exchange-traded funds based on other cryptocurrencies.
“For some time SEC might delay them as riskier, very speculative. The SEC is afraid of volatility and cryptocurrency manipulation. The main idea for the SEC is the maximum protection of investors and the minimum possible risks,” says Izvestia’s interviewee. “Nevertheless, cryptocurrency is a class of assets which is impossible to ignore, and the SEC has been forced to make a decision.”
In any case, institutional investors who usually assign the main trends on the market will continue to push the cryptocurrency market toward the appearance of new instruments and the achievement of new historical price maximums. Several large companies like Grayscale, intent on reformatting their existing non-traded Bitcoin funds into ETFs, are already appearing, since the stock market is the most convenient place for trading with more legal safeguards.
Khvoinitskiy agrees with this thesis. “You could say with a great degree of certainty that institutional investors will start pouring money into Bitcoin, because even old school investors have started to pay attention to Bitcoin. Even Warren Buffet has purchased it. That is, a clear new trend toward increased investment into cryptocurrency is forming,” he says.
But Khvoinitskiy worries the appearance of new synthetic forms of cryptocurrency assets poses significant risks for the entire financial system. According to him, the dramatic and uncontrolled release of this type of asset might just give rise to yet another global financial crisis.