This decision allows 11 investment firms, including BlackRock, Fidelity, and Franklin Templeton to list Bitcoin-based ETFs on major US exchanges, including Nasdaq and the New York Stock Exchange, as early as Thursday.
This move is expected to breathe new life into Bitcoin and the broader crypto industry, which has been reeling from declining token prices, failed projects and the collapse of exchanges since its peak in November 2021.
After its all-time high of nearly $69,000 in November 2021, Bitcoin experienced a series of downturns, falling to around $16,000 within a year. However, it showed signs of recovery, trading around $47,300 after the SEC announcement, an increase of 2.8%.
A recent note from analyst Geoff Kendrick, head of digital assets at Standard Chartered, said that the ETFs can attract $100 billion in institutional investments in Bitcoin by the end of this year, and also projected an increase in the price of Bitcoin to $100,000 this year and $200,000. until next year.
Bitcoin ETFs offer a more accessible way for investors to get involved in the crypto asset, bypassing the complexities of buying Bitcoin directly.
However, there are also skeptics. Jamie Dimon, chief executive of US bank JP Morgan, before the ETF announcement said that “The real use cases (of Bitcoin) are sex trafficking, tax evasion, anti-money laundering and terrorism financing… there is no value. to (individuals) buying and selling Bitcoin.”
In India, previous reactions signal optimism.
Sidharth Sogani, head of cryptocurrency research firm Crebaco Global, said, “The floodgates are now open (for) institutional investments (to) flow in… We anticipate around $5 billion coming in (through ETFs) in the next 45 days. ETF will bring more stability to the price of Bitcoin, as the liquidity risks will reduce over time”.
India’s cryptocurrency market has been severely affected by tax rules approved in the Union Budget 2022, which introduced a 30% income tax on profits and an additional 1% tax deducted at source (TDS) on all crypto trades.
Since the tax was introduced, liquidity and daily trades on popular exchanges such as WazirX and CoinDCX have plunged by up to 93%, Mint reported on 10 January. With the ETFs now on offer, local exchanges could well be looking at their best chance to see investors return, even if momentarily, driven by expectations of price growth.
ETFs have long been seen as the solution to the volatility in the crypto market.
Due to the decentralized nature of Bitcoin, as well as its limited lifetime supply of 21 million tokens in total, institutional investors have remained wary of venturing into crypto investment for fear of unrecognized users who ‘hold’ Bitcoins in large volume across various decentralized wallets. , could potentially shatter the value of the digital token at any time.
An ETF in this regard, experts said, could help stabilize the currency to an extent if large-scale institutional investors hold significant chunks of Bitcoin.
Critics, however, have argued that doing so takes away from the whole point of a “decentralized” currency—lending power to centralized financial institutions.
ETFs also boost asset liquidity as the number of investors who can access the market increases. They also help shield investors in case of a crash because an ETF is protected by large investors.
Going forward, the market’s reaction to Bitcoin ETFs remains closely watched, both among institutional and retail investors. In addition, the upcoming ‘halving’ update for Bitcoin, which reduces the reward for mining, adds another layer of complexity to the future of this digital currency.
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Published: 11 Jan 2024, 10:39 IST