Last week, Grayscale won its lawsuit against the SEC over the agency’s refusal to approve spot bitcoin ETF.
This victory could have a significant impact on the crypto market, and not just in the long term.
Approval of Bitcoin ETFs following Grayscale’s victory
The first consequence could be that the SEC will finally be forced to approve spot bitcoin ETFs.
It should be recalled that in the US, the SEC has so far only approved ETFs based on bitcoin price futures contracts, and not yet ETFs backed directly by BTC (so-called spot bitcoin ETFs).
In addition, spot bitcoin ETFs have been approved in other parts of the world, including neighbouring Canada.
The ruling by the Southern District Court of New York, which gave Grayscale the right to do so, effectively ordered the SEC to proceed with approval if all requirements and laws are met.
Many believe that the SEC now has its back to the wall, with JPMorgan, for example, arguing that the agency will probably have no choice but to approve many of the applications.
Indeed, the court’s ruling explicitly rules out that the reasons given by the SEC so far should be considered sufficient for a rejection, and states that the SEC’s stance is arbitrary and therefore implicitly unfair.
In truth, however, there is nothing to suggest that the SEC will not do as it has always done and take its time, delaying the decision as long as possible, as it did on Friday.
However, JPMorgan’s analysts say that the delay is likely to indicate that the SEC will approve several applications at the same time, in order to avoid first-mover advantages.
Once the agency is forced to make a decision, it is expected to opt for bulk approval.
The inflow of capital: the arrival of bitcoin ETFs after Grayscale’s victory
Spot Bitcoin ETFs have one feature that makes them extremely attractive to the market.
As they are backed directly by BTC, they require the physical delivery of an amount of BTC equal to the value of the shares issued.
These BTCs have to be bought on the market, so the more shares they sell, the more Bitcoin they have to buy on the market to immobilise.
This should reduce the supply on the market and probably increase the price.
According to Anthony Pompliano, the capital inflow into the spot bitcoin ETFs can be estimated at two billion dollars, which would mean a withdrawal of up to 77,000 bitcoins from the market.
While it is not possible to calculate exactly what impact such inflows could have on the price of BTC, it is possible that at a time like this the impact could be significant.
The shortage of supply
We are in a very strange moment.
The amount of BTC on exchanges is at its lowest level in years, partly because after the various failures of 2022, many holders realised that it would be better not to leave bitcoin on exchanges.
Furthermore, exchange volumes are also very low, and these two things together mean that even a not particularly large inflow of capital can be enough to upset the precarious balance between supply and demand very quickly.
This means that a significant inflow of capital could significantly increase demand, which is currently very low, and thus put pressure on prices.
However, there is no certainty about the timing, not least because the two billion that Pompliano refers to would not come in all at once once the ETFs are approved.
The halving of bitcoin
Add to this the fact that in April next year, less than eight months away, there will be the fourth halving of Bitcoin, which in turn is expected to reduce the supply of BTC on the market, as it will halve the miners’ revenues in one fell swoop.
If the ETFs are expected to be approved by February or March 2024 at the latest, they will actually be approved just before the halving. So the $2 billion of inflows they could attract could come at the same time as the halving, or in the months immediately after.
Historically, a bull run has started a few months after the halving.
The first halving occurred in September 2012, and the bull run started in early 2013.
The second halving occurred in July 2016, and the bull run began in early 2017.
The third halving occurred in May 2020 and the bull run began in November of that year.
Although historical data is by no means sufficient to predict the future, it is possible that a similar scenario could trigger a new bull run in 2024 if the past repeats itself.
However, it is not known whether the market value of bitcoin will have remained stable or fallen in the meantime.