Bitcoin ETF race begins: Has institutional trust returned to crypto?

With the Bitcoin (BTC) halving event less than a year away, several financial giants have filed applications for a spot Bitcoin exchange-traded fund (ETF) — a scenario last seen before the 2020 to 2021 bull run. 

Institutional interest in the sector dried up after major crypto giants such as FTX collapsed amid a prolonged crypto winter in 2022. Bitcoin and many other cryptocurrencies traded largely sideways as several crypto exchanges fell under regulatory scrutiny.

However, on news that major financial institutions such as BlackRock, Fidelity, Valkyrie and others were filing applications to list a spot Bitcoin ETF, the price of BTC recovered to over $30,000, spurring investment into the crypto market again.

While several institutional giants have filed spot Bitcoin ETF applications with the United States Securities and Exchange Commission (SEC) in the past, all have either withdrawn their applications or faced outright rejections from the regulator.

The SEC approved the first Bitcoin futures ETF in October 2021 — the ProShares Bitcoin Strategy ETF — which debuted on the New York Stock Exchange on Oct. 19, 2021.

However, the spot Bitcoin ETF filing by the asset management giant BlackRock has increased the chances of the SEC approving the first spot Bitcoin ETF. That’s according to Bloomberg senior ETF analyst Eric Balchunas, who gives BlackRock a 50% chance of getting its spot Bitcoin ETF approved.

The most recent spate of ETF filings began with BlackRock’s filing with the SEC on June 16. WisdomTree, Invesco and Valkyrie also filed in the days and weeks that followed.

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On June 28, ARK Invest, which previously filed for a spot Bitcoin ETF in June 2021, amended its filing to make it similar to that of BlackRock. The next day, asset manager Fidelity Investments also filed for a spot Bitcoin ETF. In total, seven institutional giants have now filed for a spot Bitcoin ETF to date.

Some industry observers believe 2023 to 2024 will be crucial for approving a spot Bitcoin ETF. Robert Quartly-Janeiro, chief strategy officer of the cryptocurrency exchange Bitrue, told Cointelegraph that the timing is right, as “inflation is rampant and the money supply is a mixed picture, interest rates are high, and businesses are seeing decent revenues, which means crypto will need to perform in an economic environment where rates and inflation are key considerations.”

Institutional trust in Bitcoin

Bitcoin has weathered the aftermath of 2022 remarkably well and recovered more than half of its price decline during the bear market, largely thanks to the continued interest of institutional investors in the asset.

Indeed, there are significantly more institutional investors in the crypto market now compared with only one year ago. Until 2022, institutions kept a safe distance from the market, with even MicroStrategy stopping its routine BTC purchases.

Many large funds and companies have become interested in cryptocurrencies and are exploring their potential to invest in them.

Despite market volatility, global institutions show a steady interest in cryptocurrencies. Bitfinex chief technology officer Paolo Ardoino told Cointelegraph that Bitcoin represents tremendous value in terms of its utility and unique nature as a perfectly scarce asset that cannot ever be debased. He said, “The most traditional financial institutions recognize that,” adding, “It’s hardly surprising that at a time of record inflation in both major industrialized economies, as well as emerging markets, that the value of Bitcoin is being better understood by markets.”

“The recent new applications for Bitcoin spot market ETFs by some of the world’s most important asset managers demonstrates that there is investor, as well as issuer demand for Bitcoin, and that will only intensify. Apart from demonstrating increased institutional demand for Bitcoin, it will also attract new retail investors and encourage broader participation,” Ardoino said.

While many institutions distanced themselves from crypto over the past year, much of that was due to the public relations disaster brought on by FTX, with bank failures further exacerbating it. Richard Gardner, CEO of Modulus, told Cointelegraph that institutions foresaw the simmering of the crypto industry, and decided to lay low and sidestep the political and public response in the aftermath of FTX, thinking they’d be able to revisit their decision before crypto surged.

“We’re at the point where they’re beginning to weigh the risk versus reward of stepping back into the fray. Most institutions will likely be far more cautious, given the FTX disaster. They’re going to largely be moved based on the regulatory environment. As governments cobble together a full regulatory regime, and as bureaucrats decide how they plan to interpret the law, institutions will gauge their response and move forward accordingly,” Gardner said.

MicroStrategy — the leading investor in Bitcoin and one of the driving forces behind institutional adoption of BTC in 2020 — has continued its Bitcoin buying spree in 2023. When the firm faced major losses as the BTC price plunged below $16,500, CEO Michael Saylor maintained it had no intention of selling and would continue to add more BTC to its treasury. MicroStrategy currently hodls 152,333 BTC acquired for roughly $4.52 billion at an average price of $29,668 per Bitcoin.

Institutional inflow revives bull run optimism

While the 2017 bull run was sparked by retail interest, the 2020 to 2021 bull run was sparked by institutional inflows, with the likes of MicroStrategy and Tesla, and multiple other publicly-listed companies adding Bitcoin to their balance sheet.

Gracy Chen, managing director at crypto exchange Bitget, told Cointelegraph that institutions would act swiftly once they observe “stable and predictable retail interest.” Chen said, “The cumulative impact of institutions outweighs that of individual investors, and, therefore, they will continue to be a driving force for the growth of cryptocurrency market capitalization.”

She also stressed that growing interest from institutions could further crypto adoption, helping to spark the next bull run:

“Analysts expect that in the event of the approval of BlackRock’s ETF application alone, there could be a twofold increase in the price of Bitcoin. Considering BlackRock’s potential institutional investor base and influence, the approval of their spot BTC ETF would have a greater impact on the crypto market growth. With their BTC spot ETF application, they will likely inspire competition among relevant financial companies. This will direct more funds from traditional markets to Web3.”

Apart from the institutional push, there have been major developments in the retail market, with Hong Kong opening the doors for crypto exchanges to offer services to retail customers. Ben Caselin, vice president at crypto exchange MaskEX, told Cointelegraph that during the previous bull run, “U.S. institutions were the primary drivers of the upsurge, but they were arguably not ready to engage deeply and behaved no different than retail, essentially chasing gains and acting on hype.”

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“I expect this bull market to be Asia driven once again, perhaps with Hong Kong at the helm for the region, but based on my personal observations on the ground, I also expect a significant push to come from the Middle East, particularly from the United Arab Emirates, Saudia Arabia and other oil-rich jurisdictions,” he added.

With the next Bitcoin halving scheduled for April 2024, the rising interest of institutional investors is seen as a bullish sign for Bitcoin’s price and the broader crypto market. Bull runs have historically started in the run-up to the Bitcoin halving event, where the amount of BTC reward per block gets reduced by half every four years. The scarcity factor drives the price surge as retail traders and institutional giants rush to add to their Bitcoin portfolios.