Bitcoin has captivated investors and the public for over a decade with its dramatic price swings and innovative blockchain technology. Yet mainstream adoption remains elusive. Bitcoin ETFs could provide the rocket fuel to propel bitcoin into the stratosphere of mainstream finance.
Gold ETFs and Bitcoin ETFs
Gold ETFs provide an insightful precedent. Launched in the early 2000s, gold ETFs allowed stock market investors to gain exposure to physical gold without holding the metal itself. The advent of gold ETFs preceded a historic gold bull run from 2001 to 2011, during which the price of gold increased over 600%.
Gold ETFs likely contributed to this epic rise in two key ways. First, they opened up gold investing to a whole new class of stock market investors who found the ETF structure more convenient than directly owning gold bars or coins. This influx of new demand helped drive up gold prices.
Second, the transparency and regulation around the largest gold ETFs, such as GLD, increased overall confidence in the gold market. Assurances that these ETFs actually held physical gold as backing helped legitimize gold as an asset class.
Bitcoin Investments in the U.S.
Bitcoin ETFs could have a similar impact. Allowing stock market investors to gain bitcoin exposure through their regular brokerage account may prompt a wave of new bitcoin buying. JPMorgan estimates that just 1-2% of U.S. household wealth is currently invested in bitcoin, indicating substantial room for increased allocation.
Moreover, SEC approval of bitcoin ETFs have likely removed regulatory uncertainty that has weighed on bitcoin’s price, even in the face of Elizabeth Warren’s recent crusade. It signals that bitcoin has truly gone mainstream, encouraging more conservative institutional investors to build bitcoin positions.
The SEC has just recently approved bitcoin ETFs following a multi-year effort from fund managers. Previous bitcoin ETF applications had been rejected or withdrawn due to concerns around potential for fraud and manipulation in bitcoin markets. Though the price has languished in the wake of approval, the massive amount of bitcoin already accumulated through those funds is nothing short of astonishing.
Bitcoin Ready for Lift-off
The stage appears set for lift-off. When the first gold ETF launched in 2003, it took about a year before gold prices really took off. Bitcoin ETFs may light an even larger fire under bitcoin, considering its absolute scarcity when compared to gold. The pent-up investment demand is enormous, though it might take some time to materialize.
Like blasting rockets on a space shuttle, bitcoin ETFs can propel bitcoin into a new stratosphere. Yet rockets need time to ignite before reaching full thrust. The fuse is already lit on the bitcoin ETF rocket. An explosion to new highs may be just around the corner.
