January 11, 2024, was an exceptional day for Bitcoin, as it marked the approval of the first U.S. spot ETF, expanding the cryptocurrency’s accessibility to a broader audience in a more systematized and straightforward manner. It will bring more stability to the price of Bitcoin and liquidity risks will be reduced with time. The prominent asset managers, who control trillions of dollars in actively managed funds, can now participate in the Bitcoin market, which could alter the dynamics within Bitcoin itself. Wall Street won’t be the only holder of Bitcoin, though. Ownership is diverse, with whales holding considerable amounts. There’s no reason why you shouldn’t invest in ETFs, but if you prefer, you can still buy Bitcoin with credit card.
And so the question now is, are investors ready to view Bitcoin as a distinct asset class? While a healthy dose of skepticism remains, professionals’ conversations with asset managers imply that many understand cryptocurrency’s role in helping them achieve exponential wealth growth. Bitcoin-related ETF products have received the overwhelming majority of inflows since January, and it’s unlike anyone has ever seen. Insurance companies, family offices, corporates, and so forth, are starting to make crypto investments, with the net inflows doubling from $700 million to $1.2 billion, according to Blockworks.
ETF Insiders and Crypto Advocates Say the Launch of Spot Bitcoin ETFs Is a Success
Apart from worries about liquidity and manipulation, regulators have been apprehensive about Bitcoin’s volatility, fearing ordinary investors might be unable to cope with it. It took nearly a decade for spot Bitcoin ETFs to be approved. The ETFs aren’t considered securities, but the underlying asset, Bitcoin, is still regarded as a commodity, meaning it can be interchanged with other goods of the same type. Accordingly, any options need a green light. The debut of spot Bitcoin ETFs in the U.S. market pushed Bitcoin to its highest price since November 2021, when it exceeded $65,000. Bitcoin rose to a new high of $50,000.
Within their first 20 days of trading, spot Bitcoin ETFs accumulated approximately $10 billion in assets under management, which translates into the fact that the launch measures up to the hype. For the time being, low fees and name recognition are drawing income from investors. Individuals and institutions can buy and sell Bitcoin even if they have very little experience trading cryptocurrency, as ETFs offer a regulated, transparent, and familiar investment vehicle. The development impacts the likelihood that digital assets are accepted as an asset class, even though they don’t have an established track record of trust.
Reduced Inherent Volatility Can Be Expected as The Bitcoin Market Structure Matures
Trading for spot Bitcoin ETFs started on January 11, 2024, enabling ordinary investors to get exposure to the price movements of the cryptocurrency in their regular brokerage accounts. Bitcoin’s infamous price volatility might come to an end soon as the market structure matures, which could alter the perception of the mainstream public. In other words, it would be easier to own cryptocurrency because it’s not necessary to use risk/reward metrics. Despite the fact that the Bitcoin blockchain is decentralized, its native token remains in the hands of so few, referred to as whales. On account of the size of their holdings, whales are influential players in the cryptocurrency market, causing price fluctuations and triggering panic or enthusiasm among investors. Spot Bitcoin ETFs will give those interested better and more regulated access to crypto assets.
Spot Bitcoin ETFs make it possible for investors to purchase and sell cryptocurrency in one large order, therefore reducing the market impact, not to mention the overall volatility. A more developed Bitcoin market will most certainly yield lower volatility, eliminating investor apathy and exhaustion. Bitcoin, in particular, is associated with higher-than-normal volatility, so when investors attempt to sell their holdings, the price declines. In addition to speculative trading, the limited supply of 21 million coins adds to the price fluctuation. According to some research, higher liquidity leads to lower volatility over time. Nevertheless, for the year ahead, the U.S. Federal Reserve might disappoint markets by reducing interest rates less than expected.
Bitcoin Is an Asset Class on Its Journey Towards Maturation, Where Users Exercise Power
Investors looking to get into the cryptocurrency market for the short or long term have seemingly endless options, so it’s essential to understand the main types of investments and, most importantly, what happens to their money once they invest. Bitcoin has all the attributes of an emerging asset class, including holding value across space and time and legitimate use cases, such as remittance, digital payments, financial inclusion, and anti-censorship and resistance. Its volatility will come down as it becomes firmly established. The price swings of Bitcoin can diminish due to increasing financial literacy among crypto enthusiasts and a rise in crypto buyers and sellers.
Given it’s a relatively new asset class, Bitcoin investors must take into account different valuation metrics to acknowledge its future potential. Those who are fans of the traditional 60% equity/40% fixed income portfolio are reflecting how adding a tiny percentage to alternatives, such as cryptocurrency, would impact risk-adjusted returns. There’s still a debate whether Bitcoin can be considered as a new asset class, yet modern studies maintain the idea that it’s slowly but surely evolving into a new asset class. It’s practical to look at Bitcoin as a diversification tool because its level of correlation with other assets tends to be null.
Final Considerations
Bitcoin was the first of its kind, and its growth in market value has been remarkable. Regrettably, it doesn’t have a credible track record of success as a robust investment vehicle and asset class, but the approval of spot ETFs can attract new investors and elevate demand. Overall, it can be readily used by investors, yet portfolio optimization is vulnerable to asset distribution and risk measures. Spot Bitcoin exposure is now available in the ETF form, an important event in the cryptocurrency’s development history, but many agree volatility is the most important signal. To be more precise, Bitcoin’s price volatility has been declining for some time now, and it has nothing to do with ETFs. The market itself has been maturing.
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