Bitcoin returns to its golden path?

After the adoption of the Bitcoin spot ETF, Bitcoin did not see a sharp rise as expected by the outside world. Instead, it may usher in a new round of correction. As of now, Bitcoin has fallen below $43,000 and is now trading at $42,635. According to the latest data, BlackRock bought 11,439 Bitcoins on the dip. Last Thursday and Friday alone, all Bitcoin ETF providers, including BlackRock, bought a total of 23,000 Bitcoins. On January 11, Beijing time, the U.S. Securities and Exchange Commission approved 11 spot ETF applications. Bloomberg data shows that on the first trading day, 11 institutions attracted a total of US$655 million in net inflows. Highlighting strong demand from investors. According to the Wall Street Journal, the best-performing fund in terms of inflows was the Bitwise Bitcoin ETF, which attracted $238 million. The fund’s sponsors had promised it would launch with up to $200 million in seed capital, more than any other disclosed fund. It was followed by Fidelity’s Wise Origin Bitcoin Fund, which saw $227 million, and BlackRock’s iShares Bitcoin Trust, which saw $112 million. As widely expected, investors withdrew funds from the Grayscale Bitcoin Trust, a 10-year-old investment vehicle that had previously been converted to an ETF following an over-the-counter trade. Grayscale experienced a net outflow of $95 million. This is also one of the reasons for the collapse of Bitcoin that is generally understood by the outside world. A new capital market ecosystem is quietly emerging. Bitwise chief investment officer Matt Hougan said on social media that people tend to overestimate the long-term impact of Bitcoin spot ETFs and underestimate the long-term impact of Bitcoin ETFs. If we compare the current status of Bitcoin ETFs through the history of gold and silver spot ETF approvals. Maybe it can give us some inspiration and thoughts. On November 18, 2014, after the gold ETF-GLD application was approved, the price of gold also did not reach a new top. But over the next 8 years, the price of gold quadrupled, from the original $400 to $1,800, and the market value increased from about $2 trillion to about $10 trillion, an increase of about $8 trillion. According to a technical analyst from “Mcoscillator,” the moment when GLD was first listed did not mark the exact top of the gold price, but two weeks later, a significant top did occur, and this price top was not broken for the next 10 months.

GLD Debut and Gold Price Reaction

The initial listing of the silver ETF SLV in April 2006 was a similar situation.

SLV listing and silver price reaction

Once again, the day SLV was approved did not mark the exact top, but it was part of the top structure that remained high for the next few months. Both events are historical echoes of similar events that most modern investors won’t remember. Back in 1975, Americans could finally own gold bars again. In 1933, President Roosevelt made it illegal for Americans to hold gold bullion, and everyone had to sell their gold to the government, thereby putting more dollars into the economy and allowing everyone to consume and invest again during the Great Depression. Roosevelt kindly raised the price of gold to $32, up from $20.67 for many years, so bullion holders at least made money on those investments (which was taxed as capital gains, of course). In 1971, President Nixon finally removed the United States from the gold standard, primarily because the gold standard had become untenable. The trade deficit and budget deficit meant that the United States could no longer exchange gold for U.S. dollars. Germany also withdrew from the Bretton Woods Agreement in May 1971 and refused to exchange marks for U.S. dollars at the prescribed exchange rate of 4:1. By August 1971, the economic pressure was so great that Nixon closed the gold exchange window, implemented wage and price controls, and imposed a 10% tariff on imported goods. Nixon’s actions on the gold issue also laid the foundation for the eventual restoration of Americans’ rights to own gold, but it did not happen overnight. This restoration is scheduled to officially take effect on January 1, 1975. The rest of the world knew this and thought the potential demand for Americans to suddenly be able to own gold must be a bullish factor. Therefore, they tried to meet this demand in advance, driving up the price of gold significantly during 1974. By December 1974, gold’s monthly closing price rose to $185, a 330% increase from the gold convertibility price at the end of Nixon’s term.

Gold price in 1975

Unfortunately, U.S. investors’ expectations for a surge in demand for gold did not materialize as the rest of the world had hoped, and gold fell sharply. By the August 1976 low, gold ended up falling 41%, which led to one of the largest gold price bubbles ever in the late 1970s. All of these previous examples show that getting ahead of regulatory changes and expecting massive demand to emerge doesn’t always work out well for first movers. So that doesn’t mean the same will be true for the approval of these 11 new Bitcoin ETFs, but it’s worth keeping in mind. Those previous examples of gold and silver prices didn’t result in permanent tops when trades were approved, but they were tops worth noting.

What does ETF approval mean for Bitcoin?

The crypto exchange Bitfinex recently published an article titled “What does ETF approval mean for Bitcoin”. The article stated that the U.S. Securities and Exchange Commission (SEC) approved the Bitcoin ETF product, marking a historic moment in the cryptocurrency market. These ETFs provide easy exposure to Bitcoin through traditional investment channels, attracting a wider range of investors and potentially leading to a large influx of capital into the cryptocurrency market. This decision by the SEC is therefore highly influential in shaping the future of Bitcoin investing. The article states that investing in Bitcoin ETFs has several advantages compared to purchasing cryptocurrencies directly. These include no need to manage the storage of cryptocurrencies, the regulatory convenience offered by ETFs, and the established track record of traditional brokers compared to cryptocurrency exchanges. Additionally, the tax implications and guidance for traditional financial products are clearer and clearer than for digital assets. By tracking the value of Bitcoin, ETFs allow investors to participate in the financial performance of the largest, most popular and leading digital asset in a familiar and easy-to-use format, similar to trading traditional stocks. This structure eases the technical burden of managing cryptocurrency wallets, protecting private keys, and becoming familiar with the nuances of cryptocurrency exchanges. It essentially clears the barriers to entry for those interested in the Bitcoin market but daunted by the complexities of dealing directly with cryptocurrencies. As such, it provides a streamlined and simplified investment channel while retaining the dynamic and potentially lucrative nature of the Bitcoin market. In the opinion of the author of the article, Bitcoin ETFs are not all advantages and no disadvantages. There are also some disadvantages to consider. Cryptocurrency markets operate 24 hours a day, 7 days a week, while ETFs are limited to stock exchange hours and are closed on weekends and evenings. There are no fees for holding Bitcoin, but ETFs charge management fees, and investing in ETFs requires trusting a third-party custodian. ETFs may be subject to stricter regulations and tax filing burdens. Holding Bitcoin directly gives users more freedom to control their Bitcoins, although self-custody does require a learning curve that new Bitcoin users must adapt to.

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