The Majority of Crypto Traders Opt for HODling while waiting Bitcoin ETF Approval
[TL; DR]
Many Bitcoin investors are hodling BTC as they wait for the SEC to approve its ETFs.
A recent survey shows that the respondents have a balanced interest in centralized exchanges and decentralized ones.
DeFi is gaining traction due to high return on investment in cryptocurrencies.
Introduction
The price of bitcoin increased by over 20% in October due to various reasons which include the anticipation of approval of crypto exchange traded funds (ETFs) in the United States. By the end of October bitcoin was trading at around $34,491, a price it maintained into November 2023. However, crypto traders are currently employing different investment strategies including HODling.
In this article, we discuss the reasons why many long-term traders are HODling bitcoin. We shall also cover possible reasons for bitcoin’s bullish momentum. Finally, the post looks at how anticipation of bitcoin ETF approval is creating Optimism in the crypto market.
Bitcoin Traders Hold on to their BTC
Many bitcoin traders are opting to hold their coins for long periods due to the evolving crypto landscape. The much-anticipated approval of spot bitcoin applications and the impending halving event in 2024 are contributing to the crypto investors’ investment approach.
A recent survey by Injective, a blockchain developed for finance, has shown that close to 64% of bitcoin traders are willing to hold their coins for long periods. That survey, however, has also shed light on the current bitcoin investors’ motives and behaviour within the changing crypto market. For instance, it indicates that there is much optimism in the crypto sector as a result of the much-awaited approval of crypto exchange traded funds.
Let’s first focus on the nature of exchange traded funds (ETFs) to enable us to understand the real context of the current market frenzy and the reason why bitcoin investors are hodling the coin.
Understanding Spot Bitcoin Exchange Traded Fund (ETF)
A spot bitcoin exchange-traded fund (ETF) is a digital investment asset that allows ordinary investors to have exposure to Bitcoin price movement. In fact, bitcoin is the asset that backs BTC ETFs, a reason why they track its price.
It is important to note that ETF shares are traded in stock markets not in cryptocurrency exchanges or DeFi trading platforms. Also, the crypto ETFs are regulated financial investment assets. They are different from most cryptocurrencies which are not regulated in most countries.
One reason many cryptocurrency investors are interested in the approval of crypto ETFs is that they indirectly affect the prices of the related coins or tokens. The issuers of bitcoin ETF, for instance, should hold BTC whose value is equivalent to the ETFs they have created.
As a result, the approval of bitcoin ETFs will increase the scarcity of the coins in the crypto market as much of it will be held in cold wallets. As said earlier, the ETF will issue shares corresponding to its value which will be available for public trading on the traditional stock markets.
This means that crypto ETFs will make it easier for institutional and retail investors to bet on the price of the cryptocurrency without having to own it. Thus, they do not need to have digital wallets or secure private keys and seed phrases.
64% of Bitcoin Investors Prefer Hodling Strategy
In the above cited survey, 64% of the participants indicated that they are hodling the coins for various reasons. However, the main reason for holding on to their bitcoin is the anticipation of approval of various BTC ETF applications.
With the holding strategy, popularly known as hodling in the crypto sector, the investors do not sell their coins in response to short-term fluctuations in price. Instead, they wait for the value of the crypto asset to rise remarkably over several months or years. The hodling of bitcoin indicates the investors’ confidence in the cryptocurrency.
Currently, most bitcoin investors believe that bitcoin ETF approval by the United States Securities and Exchange Commission (SEC) will likely increase its adoption and ultimately its price. This is because a bitcoin ETF will bridge the gap between the cryptocurrency sector and the traditional financial sector which will open new investment avenues.
Nonetheless, the SEC has not announced a date for the approval of crypto ETF. Also, it has not confirmed that it will approve any BTC ETF. That is why a crypto analyst by X username Money-zg predicts that the SEC is likely to approve one or more spot bitcoin ETFs before or on 10 January 2024, the deadline for Ark invest ETF application final decision.
Spot Bitcoin ETF Possible Approval Timeframe- XMoneyZG
In the meantime, the SEC Chair, Gary Gensler, has not given any definite timeline for Bitcoin ETF approval.
Crypto Traders Show Trust in Both Centralized and Decentralized Exchanges
The results of the same survey show that crypto traders have trust in both centralized and decentralized cryptocurrency exchanges. Most of the participants indicated that they trust various exchanges. This also shows that the crypto traders have expertise in navigating different crypto trading platforms.
However, 10.3% of the survey respondents were unable to identify whether or not the exchanges they use are centralized or decentralized ones. Generally, both centralized exchanges and decentralized ones offer similar crypto investment products.
Anticipation of Bitcoin ETF Approval Shapes Crypto Trading Behaviour
On Tuesday, 24 October, the price of bitcoin reached $35,000 after gaining by 11.5% within 24 hours. That BTC price surge means the coin had a 109% year-to-year increase. This recent bitcoin price rise is a result of the optimism emanating from the possibility of bitcoin ETF approval in the United States.
Several asset management firms including BlackRock, Fidelity, ARK Investment and Valkyrie have applied for BTC ETFs.
As the possibility of bitcoin ETF approval increases many crypto traders hold crypto as they forecast the BTC price to rise. The current sentiment in the cryptocurrency market is enticing many digital asset investors to buy crypto now before the approval of at least one crypto ETF.
Much of the optimism around bitcoin ETF is the recent court ruling that the SEC should review Grayscale Spot Bitcoin ETF application. Although there is no guarantee that the SEC will approve that crypto ETF, many analysts think there is a high chance for its approval.
Notably, the SEC did not appeal against that court ruling, something that has further increased the hope that the regulatory authority may approve bitcoin ETFs in 2024. As many crypto investors wait for the bitcoin ETF approval they are buying and holding BTC anticipating a possible BTC price rally.
Could the Launch of Bitcoin ETF Affect the Price of Bitcoin?
The reason why Bitcoin crypto traders are using the hodling investment strategy is to benefit from the possible bitcoin price rise following the approval of BTC ETFs. This creates a big question: does the approval of bitcoin ETFs lead to a BTC price surge?
First off, there is no doubt that bitcoin ETF approval will have a big impact on the price of bitcoin. We can anticipate the effect of the launch of a bitcoin ETF on the BTC price by uating what occurred on 16 October 2023.
The bitcoin price increased by 10% due to the fake news that the SEC had approved Grayscale’s spot bitcoin ETF. However, the gain was reversed after the market learnt that no BTC ETF was approved. What happened, though, shows that the price of bitcoin may rise significantly if there is a BTC ETF approval.
A recent Galaxy Digital report stated that the approval of bitcoin ETFs may result in over $14, 4 billion inflows in the first trading year. During the second and third years the BTC ETF market is likely to have inflows of $27 billion and $39 billion respectively.
It also pointed out that the price of bitcoin will likely increase by 74% within the first year after the BTC ETF approval. In addition, a Pseudonymous analyst DonAlt said, “I think $60,000 is a reasonable target if we get the ETF. Now obviously not in the short term, but that’s kind of where I think this could go. I think between $60,000 and $100,000 is the upper end.”
He added, “It’s just a strong fundamental kind of shift in the narrative… if you get an ETF, that’s kind of like a go-ahead sign… it’s a little bit of a go-ahead sign from the US government which just gives this entire space a little bit more legitimacy.”
There are several ways in which the bitcoin ETF approval may lead to a surge in the price of bitcoin.
Increased adoption: First, spot bitcoin ETFs will attract much investment in the sector. Large investors will pour their funds into the crypto ETF market which increases their exposure to bitcoin. Institutional investors like hedge funds and pension funds may invest in bitcoin and other cryptocurrencies.
Market validation: The BTC ETF approval may act as a sign that the government has accepted bitcoin as a recognized investment asset. As such, bitcoin may become part of the mainstream financial market.
Increased Public Awareness: The approval of bitcoin ETF application will result in increased public awareness of both exchange traded funds and cryptocurrencies like BTC. Such public attention may raise people’s curiosity in cryptocurrency which can lead to greater adoption.
The fact that the bitcoin ETF issuers will need to buy and hold BTC equivalent to the number of ETF shares they have will increase its demand and reduce its availability on the market. This may lead to more stable prices and sustained liquidity which will attract ordinary investors to trade crypto, especially BTC.
Reasons why DeFi is Gaining Traction
The increase in demand for bitcoin indicates that DeFi is gaining traction. The survey cited at the beginning of the article shows that many investors have interest in DeFi because of the high return on investment. Specifically 62.1% of the respondents trade crypto.
The other motivation for investors to participate in DeFi trading is the wide choice that exists in the market. More specifically, there are more than 1,000 cryptocurrencies on the market which the traders can invest in.
The high returns, many investment assets and the broader DeFi benefits are shaping the trading behaviours of many crypto investors. For instance, with DeFi investors can earn interest, borrow digital assets and trade crypto.
In DeFi, unlike in the traditional financial sector, the required data is readily available in decentralized applications and platforms. This enables people who invest in crypto to make informed investment decisions.
Role of Hodling in DeFi
Basically, hodling cryptocurrencies is a unique element of the DeFi sector. When investors hold on to their BTC there will be a mini-supply squeeze which may push its price upwards. The more people hold bitcoin the more likely that its price may rise in the near future.
Conclusion
Many bitcoin traders are holding onto the coins as they anticipate the BTC price to rise. Some analysts believe that if the SEC approves bitcoin ETFs the price of bitcoin may increase by a large margin. The SEC is likely to approve spot bitcoin applications in 2024.
FAQs about Bitcoin hodling
Why hodling crypto is better than trading?
Hodling enables the value of a cryptocurrency to increase steadily over time which may result in higher return. This is different from trading which poses a higher risk than hodling. Trading involves buying and selling cryptocurrency within a short time such as a day. However, hodling involves buying and keeping cryptocurrency for a long period such as several months or years.
What is the point of holding crypto?
People hold cryptocurrency to earn return on investment over a long period without being worried about the short-term fluctuations in prices of the assets. Holding cryptocurrency is a long-term investment strategy which has less risks than trading.
Is holding crypto a good idea?
Holding cryptocurrency is a good idea if it has strong fundamentals and has a prospect of further price rise. For instance, it is a wise idea to hold bitcoin a few months before the halving event.
Is it good to hold crypto long term?
The length of time an investor should hold a crypto depends on his/her target. However, it is more profitable to hold a cryptocurrency for a long period such as a year than a short one. As a guide it is a good idea to hold a cryptocurrency for more than 6 months.
Which ETF holds the most bitcoin?
The ProShares Bitcoin Strategy ETF (BITO) with a value of $1.1 billion holds the most bitcoin. The other ETFs are ProShares Short Bitcoin ETF (BITI) worth $80 million, VanEck Bitcoin Strategy ETF (XBTF) ($45 million), Valkyrie Bitcoin Strategy ETF (BTF) ($29 million), Simplify Bitcoin Strategy PLUS Inc. ETF (MAXI) ($25 million) and Global X Blockchain & Bitcoin Strategy ETF (BITS) with a value of $13 million.
