The launch of spot Bitcoin (BTC) exchange-traded funds (ETFs) in the U.S. marked a sea change for the digital asset class as it created a simple way for retail investors, pension funds, and large institutional firms to access cryptocurrencies in a familiar and comfortable way.
With Hong Kong preparing to launch spot BTC ETFs as early as next week, backed by “at least four mainland Chinese and Hong Kong asset managers,” according to a report from Reuters, the record-breaking demand that Bitcoin ETFs have already seen is likely to increase, pulling up Bitcoin’s price along with it.
According to Yves Longchamp, Managing Director and Head of Research at AMINA Bank, the growth of Bitcoin and the crypto market is just getting started as the asset class prepares for an increase in engagement from investors across all walks of life.
“The BTC ETFs meaningfully altered the landscape of the crypto market as they have opened the doors to new investors,” Longchamp said during an interview with Kitco Crypto. “ETFs are well-known financial products that give exposure to all types of underlying assets. As a result, new money has been invested in Bitcoin.”
“Indirectly, it has also benefited the entire crypto space as other cryptocurrencies have massively increased in price, such as Solana (SOL) and Ether (ETH),” he added. “Notice that ETFs may be announced this year in the US for both of these currencies.”
“There now exists two different ways to invest in cryptocurrency,” Longchamp explained. “Either you see crypto as an asset class and want to take exposure to it to diversify your portfolio (in that case, an ETF is an elegant solution), or, you see crypto as more than an asset class, a new paradigm, and buy, hold and transact with your crypto directly. Once you are in the crypto universe, you can do things with Bitcoin you cannot do with an ETF. Consider DeFi for instance, or more simply, international payment.”
Addressing the significant inflows into the newly issued spot Bitcoin ETFs, which have accumulated a combined $12.37 billion in assets under management since launching on Jan. 11, Longchamp said “The inflows demonstrate a growing interest from investors to access this new asset class.”
“I think it reflects a generational shift but also a broader vision that we are in a digital age that requires a native digital currency to develop,” he said. “The history of Bitcoin has been very volatile with ups and downs of high amplitude. History taught us that Bitcoin used to lose 80% of its value in a cycle, to recover later. Despite this high volatility, its correlation with traditional asset classes has remained low and thus is a good diversifier.”
As for what is needed from a market infrastructure standpoint to accommodate the increase in flows and volumes, he focused on two key improvements.
“We need two things: a good connection between the traditional financial and the new crypto financial systems so that money can flow easily from the fiat to the crypto ecosystem and vice-versa, and an efficient system to trade and settle the transactions,” Longchamp said.
“As ETF providers are regulated, they will increasingly demand regulated custody and trading services,” he noted. “On the one hand, they want to have access to reliable infrastructure offering institutional grade services, and on the other hand, they want to access underlying assets that passed the usual KYC and AML requirements.”
For the banking industry to prepare for the increased interest in crypto and the anticipated returns that will come over the next year or so, Longchamp said they will “either need to build their capabilities, which requires time and new skills, or they will have to rely on the services of others.”
He noted that AMINA Bank offers a B2B business platform “that helps other financial actors quickly and easily offer crypto solutions to their clients,” and sees services like this becoming more popular moving forward.
Bitcoin price projections
With the halving expected to occur between April 19 and 20, much of the conversation in the crypto ecosystem is focused on Bitcoin price, and how high it could run in the months that follow the quadrennial reduction in new BTC emissions.
“Crypto markets used to perform well after Bitcoin halving events,” Longchamp said. “The next halving is set to take place on 20th April. Historical analysis (see chart) shows that on average, Bitcoin price is on a rising trajectory 350 days after the halving. The period extends up to 600 days as some rallies last longer.”
“While each cycle around Halving is unique, there are noticeable similarities,” a report from AMINA Bank said. “The yellow line, which represents the average of the first three halving cycles, suggests a typical seasonality around Halving.”
“While there is no guarantee that the cyclical pattern will repeat with the fourth Halving, the current cycle exhibits similarities to the previous three Halvings,” the report said. “The approval of 11 spot Bitcoin ETFs in the US in January 2024 has further fueled expectations that institutional demand will continue to rise. Evidence of inflows into these 11 ETFs signals an increasing demand and validates these expectations, explaining the good performance of Bitcoin price in February.”
“Our historical analysis shows that Halving events have historically acted as positive catalysts for Bitcoin price, and the current cycle exhibits similarities to previous ones, suggesting that Bitcoin price is likely to increase further,” the report concluded. “Additionally, the approval of ETFs has bolstered institutional demand for Bitcoin and is expected to provide ongoing support for its price.”
When asked if the demand for Bitcoin ETFs would help reduce the typical 50-80% correction that has historically followed a bull market top, Longchamp said that is the million-dollar question.
“The answer depends mainly on who owns the ETFs,” he said. “If institutional investors own them as part of their strategic asset allocation, they will buy Bitcoin when the price is down significantly to rebalance their portfolio. This would limit the drawdowns. I think we are not there yet as Bitcoin, and cryptocurrencies in general, are new asset classes not yet part of strategic asset allocation.”
For this reason, Longchamp said the U.S. dollar will remain atop the currency landscape for the time being, and global markets will adjust to ongoing dollar printing over time.
“In the entire crypto space, the USD remains the currency of reference,” he said. “Bitcoin is priced in USD and all meaningful stablecoins are USD denominated. From that point of view, USD remains the standard to price assets.”
“Regarding the soaring debt and the potential end of the dollar, the question is mainly about an alternative to it,” Longchamp noted. “Currently, there is no currency as widely used and as liquid as the USD, both in the fiat and in the crypto space. The dollar dominance, while declining, is set to last for some time.”
“However, as a hedge against its depreciation and debt crisis, Bitcoin and gold are obvious candidates,” he concluded.
“The upcoming Bitcoin Halving in 2024 holds significant potential for the cryptocurrency market,” the report from AMINA said. “Based on historical patterns, the crypto summer phase following the Halving could lead to new all-time highs. The current cycle exhibits similarities to previous Halvings, indicating a likely increase in Bitcoin’s price.”
“Overall, our analysis draws a constructive scenario for the future of Bitcoin and its mining industry,” the report concluded. “If the April Halving event rhymes with previous halvings, Bitcoin price should continue to increase and test new ATHs.”
This article originally appeared on Kitco News