How does the market price respond when an institution applies for a Bitcoin ETF?

With the continuous development and maturity of digital currency, Bitcoin ETF (Exchange-Traded Fund) is gradually attracting the attention of the financial community. Recently, well-known financial institutions such as industry giants Fidelity and BlackRock have submitted applications to regulators, intending to launch spot bitcoin ETFs, which undoubtedly injected a strong impetus into the cryptocurrency market. At the same time, the futures bitcoin ETF that has been approved and is in operation also provides investors with new ways to participate in the bitcoin market. The rise of the Bitcoin ETF marks that cryptocurrencies are moving towards the broader capital market, which has aroused great interest from global investors.

When different spot bitcoin ETF application news is released, the bitcoin market also experiences different levels of volatility. This article summarizes the bitcoin volatility trends on different application submission dates and in the short term:

Ark Invest & 21 Shares

Cathie Wood's Ark Invest and European asset management company 21 Shares were the first to submit, and the submission date was April 25 this year, but this is their third attempt, and the first two were rejected by the SEC. The filing is seen as a “gamble” with Grayscale’s lawsuit, because if the SEC loses the case with Grayscale, they will be forced to approve a spot bitcoin ETF.

After the news of the application was released, according to Coinmarketcap data, Bitcoin experienced a small increase on the day, but experienced large fluctuations on the next day. It was once close to 30,000 US dollars, but then fell back to around 27,000 US dollars, and finally stabilized at 29,200 About 6.9% higher than before the news was released.

Bitcoin movement before and after Ark Invest's filing. Source: Coinmarketcap

It is reported that this may be the only application that is approved ahead of BlackRock.

The April filing did not include a monitoring-sharing agreement included in the BlackRock and Fidelity filings, which could be at the heart of any SEC approval. Accordingly, on June 28, ARK Invest had amended its application documents for a spot bitcoin ETF to include a monitoring sharing agreement similar to BlackRock’s, involving sharing information about market trading activity, settlement activity and client identities. information to guard against the possibility of market manipulation.

Bloomberg ETF analyst Eric Balchunas pointed out that because ARK's application is ahead of BlackRock's application, ARK's application may now be at the top of the waiting list.

BlackRock

The recent Bitcoin ETF application by the top asset management company BlackRock is the beginning of this round of accelerated admission of institutions to Bitcoin ETFs. On the afternoon of June 15th, BlackRock's iShares department submitted the iShares Bitcoin Trust application documents to the US SEC. The iShares Bitcoin Trust will use Coinbase Custody as its custodian, according to a filing with the U.S. Securities and Exchange Commission (SEC).

Before BlackRock submitted the application, the price of Bitcoin fluctuated around 25,000, but it rose in a straight line after the news was released. The one-day increase on the 15th was not large, only 2%; but then it went all the way up, and stood at $27,000 on the 19th.

Bitcoin’s movement before and after BlackRock’s filing. Source: Coinmarketcap

Technically, BlackRock's proposal is a trust, but it's a redemption trust, so it functions like an ETF. Therefore, the iShares product is completely different from GBTC which has no redemption mechanism. The key difference is that a spot bitcoin ETF "will be able to buy bitcoin at the end of the trading day to keep the fund's assets in line with the price at which they are trading." Joe Consorti, market analyst at The Bitcoin Layer, said trusts don't have the capacity to do that.

Previously, the SEC had repeatedly rejected spot bitcoin ETFs submitted by other institutions, and it was reported that it was concerned about the transparency of the market and the possibility of manipulating the market. The inclusion of a monitoring-sharing agreement in BlackRock's application may have allayed those concerns, and subsequent applications by other institutions have similar proposals.

At the same time, there are some conservative voices in the industry. For example, Mike McGlone, a senior macro strategist at Bloomberg Intelligence, pointed out in the latest issue of "Encryption Outlook" published on Twitter that even if the spot bitcoin ETF applied by BlackRock is really approved , nor will it be launched in 2023. The report pointed out that since 2021, the key price of Bitcoin has been around $30,000, benefiting from the largest surge in money supply in history, which has promoted the rise of many risky assets. However, most central banks chose to continue tightening monetary policy in June. While risk assets have rallied on hopes of a mild U.S. recession and Fed easing, they are still in headwinds, so there is unlikely to be much of an increase in liquidity.

Currently, the application is still under review. The approval process is not transparent and may "take months or years" to approve, but industry analysts say BlackRock's reputation and influence in the financial industry may make it easier for regulators to approve within "days to weeks." this product.

Fidelity Investment

Two weeks after BlackRock filed its application for a bitcoin spot ETF, Fidelity Investments also filed for a spot bitcoin exchange-traded fund. Prior to this, Fidelity had submitted the same application once, but it had been rejected by the SEC. This time it is a resubmission, possibly because BlackRock's application is seen as a sign that the SEC's position may change soon.

After Fidelity Investments filed for an ETF, the bitcoin market began to surge, rising from around $30,100 to around $30,800, an increase of about 2.3%. There was a slight pullback after the SEC released word on June 30 that the application was "inadequately documented."

Thursday's application was filed by Cboe BZX exchange to disclose "Wise Origin Bitcoin Trust," the name of a bitcoin ETF previously proposed by Fidelity but rejected by the SEC in 2022. Over the past two weeks, the exchange has filed similar applications for other companies.

Similar to the BlackRock filing, Fidelity Investments’ filing today includes a “monitoring sharing agreement” with an unnamed U.S.-based spot bitcoin trading platform, designed to help assuage the SEC’s concerns about market manipulation.

Fidelity Investments currently manages $11 trillion in assets and has tens of millions of retail brokerage clients. The company is no stranger to cryptocurrencies, having operated an institutional custody and trading services business in the market since 2018.

Valkyrie、WisdomTree、Invesco、Bitwise

Compared with the giants BlackRock and Fidelity Investments, the asset management scale of these companies is relatively small: the asset management scale of Valkyrie and Bitwise is about 1 billion US dollars, WisdomTree is 87 billion [1], and Invesco is about 1.48 trillion [2]. The applications of these asset management companies for the Bitcoin spot ETF all appeared after BlackRock's application, and it is said that BlackRock's application may make the Bitcoin spot ETF possible.

Among them, Bitwise was the earliest to submit the application. The application was submitted on June 16, the second day after BlackRock announced the application. Bitcoin rose by about 3% on that day. It is not ruled out that there may be some follow-up effects of BlackRock. However, after Invesco, WisdomTree, and Valkyrie announced their submissions on the 20th and 21st, respectively, Bitcoin began to soar, rising from around 26,700 to over $30,000, an increase of 12.4%. When BlackRock applied separately before, there were a lot of conspiracy theories that the SEC sued the native exchanges and asset management companies in the currency circle some time ago, thus making room for the old American institutions to enter the currency circle. However, the follow-up of these institutions strengthened investors' confidence in the entry of other US asset management institutions into Bitcoin, which led to a sharp surge in Bitcoin.

The trend of Bitcoin around June 20. Source: Coinmarketcap

While the popularity of bitcoin spot ETFs has been rising, the futures bitcoin market has also ushered in the first US leveraged bitcoin futures ETF from Volatility Shares. The US SEC has approved Bitcoin futures ETFs since 2021. The first futures ETF was released by ProShares, and the fund size has reached US$1 billion. However, the release of the leveraged ETF released by Volatility Shares, which went online this Tuesday, did not meet market expectations. In the two trading days after the first day, the single-day trading volume was less than 300,000 US dollars, and the current asset management scale is 5.7 million US dollars. The lawsuit between Grayscale and the SEC is still going on, and it is not clear whether the trust can be successfully converted into an ETF.

Whether it is the spot bitcoin ETF that is being applied for or the futures bitcoin ETF that is already in operation, the emergence of these products further proves that the status of bitcoin in the traditional financial system is gradually recognized. As more and more financial institutions get involved in the cryptocurrency market, the development of Bitcoin ETF is bound to provide investors with more choices, increase market liquidity, and further promote the value and recognition of Bitcoin. However, investors still need to remain rational, understand the risks in the cryptocurrency market, and carefully evaluate their own investment capabilities and risk tolerance. The rise of Bitcoin ETF marks a new chapter for digital assets, and we look forward to seeing more innovative products and investment opportunities emerge, bringing more diversified choices to global investors.