The price of Bitcoin (BTC) surged past $27,000 briefly on Friday following reports that the US Securities and Exchange Commission (SEC) would not appeal a court ruling that allowed crypto asset manager Grayscale to convert its Bitcoin trust into an Exchange Traded Fund (ETF). This decision by the SEC indicates a potential shift in its stance on Bitcoin ETFs, raising expectations that more spot Bitcoin ETFs will be approved in the near future. Wall Street giants such as BlackRock, Fidelity, and Vanguard have already filed their own applications for spot Bitcoin ETFs back in June, further fueling this optimism.
An Encouraging Legal Development for Grayscale and Bitcoin Market
Back in August, the D.C. Circuit Court of Appeals determined that the SEC’s rejection of Grayscale’s ETF application was “arbitrary and capricious”, requiring a review. This ruling signaled a change in the SEC’s approach and hinted at a diminished commitment to blocking the passage of Grayscale’s and other companies’ spot Bitcoin ETF applications. While the SEC may still reject Grayscale’s application for different reasons, its decision not to appeal the court ruling suggests a weakening resistance to the arrival of spot Bitcoin ETFs.
The Potential Benefits of Converting to an ETF
If Grayscale’s Bitcoin trust is converted to an ETF, it could eliminate the discount that has been observed in its shares. Currently, the shares trade at a discount to the trust’s actual Bitcoin holdings. The conversion would allow for an issuance/redemption model to be implemented, ensuring that new shares are issued during periods of rising demand and redeemed during periods of falling demand in order to maintain price stability in line with Bitcoin. The anticipation of this conversion has already led to a significant narrowing of the discount in recent months.
“The narrowing of the discount could be seen as a positive sign for the bitcoin market, indicating rising demand,” says an unnamed analyst.
As of early Saturday trade, the Bitcoin (BTC) price is consolidating just below $27,000, showing potential for further growth. However, analysts at Coinbase caution that the approval of spot Bitcoin ETFs may already be factored into the current price of Bitcoin, limiting its short-term upward potential. David Duong, head of research at Coinbase Institutional, argues that if a favorable SEC decision occurs, it is unclear how much more Bitcoin can outperform.
“We think the divergence in the performance of bitcoin and other tokens shows that the potential approval of one or more spot bitcoin ETPs has already been partially priced in… That makes it less clear how much more bitcoin could outperform if a favorable US Securities and Exchange Commission (SEC) decision occurs,” says David Duong.
While the future of spot ETF approvals is uncertain, macro headwinds persist. The recent surge in US inflation and the anticipation of higher interest rates from the US Federal Reserve have kept US yields near multi-decade highs. This suggests that Bitcoin’s current range between $25,000 and $28,000ish may continue in the near term. However, as we approach 2024 and spot ETF approvals become a reality, combined with excitement surrounding the Bitcoin halving and a potential cutting cycle by the Federal Reserve, the price of Bitcoin could skyrocket.
At its current price below $27,000, Bitcoin still stands over 60% lower than its all-time highs. Considering Bitcoin’s historical performance, it is not surprising that there is speculation about the cryptocurrency surpassing its previous peaks by significant margins. In fact, gains of 200 times the current price are seen as a strong possibility.
