The volatile and challenging cryptocurrency sphere is now pinning hopes on the possibility of a cryptocurrency ETF, applied for by BlackRock, the world's largest asset management firm, gaining approval.
Analysts believe that while the U.S. Securities and Exchange Commission (SEC) doesn't reveal the details of its approvals, the green light for this particular ETF could potentially boost the cryptocurrency market significantly.
The ETF applied for by BlackRock is a Bitcoin spot ETF. So far, the SEC has not approved a Bitcoin spot ETF, instead, previously approved Bitcoin ETFs have all been Bitcoin futures ETFs.
On Wednesday, June 21, during the U.S. trading session, Bitcoin surged nearly 8%, breaking through the $30,000 mark, hitting a new high since the end of April this year. However, compared to the high point of 2021, Bitcoin has fallen by about 60%.
The market believes that Bitcoin's recent surge is related to the Bitcoin spot ETF applications submitted by institutions like BlackRock.
Vijay Ayyar, International Markets Director of CoinDCX, India's largest cryptocurrency exchange, suggested that the string of Bitcoin spot ETF application announcements by large institutions has undoubtedly restored bullish sentiment in the cryptocurrency market.
From a technical standpoint, Bitcoin has broken the downward trend that began in April this year and lasted for about two months. Therefore, most traders expect Bitcoin to at least test the $32,000 resistance line. If it breaks through this level, Bitcoin is predicted to target $36,000 and potentially surge to between $45,000 and $48,000.
It won't be easy to change the SEC's mind, but there are reasons to believe it is possible. At first glance, BlackRock's application is broadly similar to previous proposals, creating an ETF that owns and trades Bitcoin. These Bitcoin ETF applications are generally similar in operation to physical commodity ETFs like gold. But one crucial point to note about BlackRock's application is that according to a regulatory file, BlackRock has also submitted a protocol that will share the "supervisory power" of the spot Bitcoin trading platform with NASDAQ. In other words, the exchange and regulatory authorities can gain confidential information about buyers, sellers, and prices.
Potential manipulation of Bitcoin spot prices is a crucial reason the SEC has thus far rejected Bitcoin spot ETF applications. To avoid this problem, BlackRock's choice of Coinbase as its oversight sharing platform could be critical. This is because Coinbase is one of the exchanges that inform the Bitcoin reference price to the Chicago Mercantile Exchange (CME), and BlackRock's ETF will use this reference price.
Almost all applicants for a Bitcoin spot ETF believe that the Bitcoin spot market is now potentially regulated by the CME. But the SEC believes that even if Bitcoin spot and futures market prices are closely related, the agency doesn't have enough evidence to show an attempt to manipulate spot market trading on the futures market.
The U.S. Court of Appeals for the District of Columbia Circuit may be considering whether the SEC's argument is convincing. Now, as the case is at a stalemate, it could signal to companies like BlackRock that the situation could reverse.
If the SEC approves BlackRock's Bitcoin spot ETF, then the agency won't have a reason to reject other spot ETF applications.
If BlackRock's application is approved, the most direct beneficiary will be holders of the Grayscale Bitcoin Trust (GBTC), as GBTC's discount might end, and it could even trade at a premium to Bitcoin's spot price.
This year, GBTC's trading price has been increasingly at a discount to the value of Bitcoin it holds, with the average discount this year being around 40%.
Since BlackRock's application, GBTC's discount has already narrowed, dropping from about 44% in the middle of last week to about 34% on Tuesday of this week. During this period, GBTC's daily trading volume surged from $16.1 million to $80 million, an increase of about 400%. This shows that investors are very hopeful about BlackRock's application for the spot ETF.
Many other institutions may follow BlackRock's lead and submit similar applications. Last week, Bitwise Asset Management, which had previously applied for a Bitcoin spot ETF, sought new permissions to list a Bitcoin spot ETF.
Another possible beneficiary could be Coinbase - as the custodian of BlackRock's proposed ETF and GBTC's Bitcoin, the company could potentially gain a more stable income source than trading volume-based fees. Coinbase's institutional business could also become the hub for market makers trading around the Bitcoin spot ETF.
Recently, the SEC has brought lawsuits against Binance and Coinbase, two titans in the global cryptocurrency trading market that account for half of the market share. The SEC's lawsuits against these two exchanges are seen as the strictest regulatory action ever taken against the crypto market. If BlackRock's Bitcoin spot ETF is approved, it could alleviate the pressure facing Coinbase.
