When the Bitcoin ETF Is Coming: This Is What You Need to Know Now

The start of the new year could hardly have gone better for Bitcoin. In the first three trading days, the price of the oldest and best-known cryptocurrency rose by a good 6.3 percent to $45,000 . This is the highest level since April 2022.

Bitcoin is thus continuing its rally from last year , which it ended with a price increase of almost 170 percent. The cryptocurrency is still a long way from its previous record high of a good $69,000 in November 2021, but one thing is clear: Bitcoin is celebrating its comeback.

This is not just due to the prospect of interest rates falling again , from which speculative assets in particular benefit. The biggest price driver is the hope that special Bitcoin ETFs will soon be approved. Market observers see them as a game changer for the crypto world. There are similar plans for Ether, the second largest cryptocurrency.

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What advantages would a Bitcoin ETF have?

Cryptocurrencies have had a dirty image ever since they were created. Because transactions are more difficult to trace, criminals also use cyber currencies, for example for money laundering or terrorist financing. Investors and institutional investors have kept their hands off them for a long time. But now Bitcoin and Co. are on their way into the investment mainstream. A Bitcoin ETF is likely to accelerate this development because it creates additional trust.

Corresponding applications came from experienced and established Wall Street houses such as BlackRock, the world’s largest asset manager. In addition, the ETFs will only be approved if there are no regulatory objections from the US Securities and Exchange Commission (SEC). This would distinguish the new products from the previous offerings of many crypto exchanges that are not licensed by a regulatory authority.

Experts believe that a lot of fresh money will flow into the crypto market after approval. This is not only due to the trust bonus, but above all because the group of buyers for Bitcoin and Co. would suddenly increase significantly. With such ETFs, institutional investors could now also invest in Bitcoin. So far, they have hardly had access to the crypto market.

Bitcoin ETFs already exist. Why are the new index funds so important?

In fact, Bitcoin ETFs were launched a good two years ago, at the height of the crypto boom. However, their structure differs from those currently planned. So far , only so-called Bitcoin future ETFs have been approved in the USA . These represent derivatives with which investors can speculate on the future performance of Bitcoin. With these futures, investors can only participate in possible price gains without holding real cryptocurrencies.

However, the latter is important for regulatory reasons for institutional investors such as pension funds and family offices – and would be possible with the ETFs now planned. These are so-called spot ETFs. They are based on the second-to-second market price and, more importantly, include physical Bitcoins.

When can we expect a decision on the Bitcoin ETF?

A decision from the US Securities and Exchange Commission is expected in the first weeks of January. The SEC has until January 10th to decide on approval. However, some industry observers assume that a decision will be made in the coming days. This expectation is also reflected in the price increases over the past few days.

How would the Bitcoin price develop if the ETF is approved?

Price forecasts for Bitcoin are hardly possible. There are no real economic fundamentals against which one could evaluate the development of the cryptocurrency. To look into the crystal ball, investors have to limit themselves to chart technology and macroeconomic events. Nevertheless, even though Bitcoin has already risen sharply in recent months, the approval of a spot ETF has the potential to cause the price to rise even further.

Estimates of what level Bitcoin could reach after possible approval vary widely, even among optimists. While some cite the previous record high of a good $69,000 as a realistic scenario, others believe price targets of several hundred thousand dollars are possible.

How would the Bitcoin price develop if the ETF is rejected?

The strong price increase in recent months is primarily based on the hope that the SEC will approve the Bitcoin ETF. Most experts assume that the stock market regulator will give the green light. However, if they reject this, there is a risk of severe price setbacks. The Bitcoin rally really gained momentum in October: Since then, the price of the cryptocurrency has risen by over 60 percent. Large parts of the price gains could then melt away.

However, there are also stabilizing effects: The US Federal Reserve recently announced that it would cut key interest rates three times this year. With interest rate pressure decreasing, Bitcoin is becoming more interesting for investors again. Halving is also coming up in April : This is an artificial shortage of supply integrated into the Bitcoin algorithm. If demand remains the same or increases, this leads to increases in value.

How good would Bitcoin ETFs be for German investors?

German investors who already own Bitcoin would ostensibly benefit from the approval of spot ETFs through rising Bitcoin prices. However, the index funds approved in the USA would be of little use to them as investment vehicles. Pure Bitcoin ETFs are not permitted in Germany because, for regulatory reasons, providers are not allowed to set up index funds with only one fund component. But if you want to buy Bitcoin and Co. in Germany away from crypto exchanges, you have other options.

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(Featured image by geralt via Pixabay)

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First published in WirtschaftsWoche. A third-party contributor translated and adapted the articles from the originals. In case of discrepancy, the originals will prevail.

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