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Newbloc: Analysis of the impact on the price of Bitcoin from the launch of the Bitcoin ETF

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The funds that enter the Bitcoin ETF will directly flow into the BTC spot and have a direct impact on the BTC spot price.

Author: Newbloc Strategist Barry Bloc has 5 years of experience trading in the FX gold market

With the launch of the first bitcoin ETF on the Toronto exchange on Thursday, 9.65 million bitcoin ETFs were traded throughout the day, making it into the top 10 on the exchange, with shares worth $165 million traded. The Purpose Bitcoin ETF (ticker symbol BTCC) aims to provide the world's largest exposure to cryptocurrencies by investing directly in either physical or digital bitcoin, and supports both Canadian and US dollar fiat currency purchases, issuer Purpose Investments Inc. (NYSE: BTCC) said in a statement.

Obviously, after the introduction of BTCC, the threshold for individual investors to buy bitcoin has been reduced a lot. Without BTCC, individual investors may face problems such as the loss of the key of digital currency, being attacked by hackers, and complicated formalities. The issue of BTCC solves a series of problems, and investors can enter the cryptocurrency market more efficiently and easily.

In general, the launch of BTCC will significantly increase the liquidity of Bitcoin, and the increase in liquidity will lead to increasing trading volume, which will also impact asset prices in the short term. In this case, the short-term changes will make speculative property prices increased sharply, causing further volatility of asset prices in the short term, rising asset prices will attract outside capital continue to enter, thereby continuously enlarged volume, short-term price volatility, the increase of the speculative fever form continuously strengthen these three positive feedback: the launch of BTCC is favorable for the formation of the positive feedback mechanism.

For ETF, we have already had a profound understanding from the crude oil treasure event in 2020, crude oil ETF is not equal to crude oil price. The same Bitcoin ETF is not necessarily the same as the Bitcoin price, especially in extreme markets.

However, in the current market, a few people hold the majority of Bitcoins, and due to the limited total amount of Bitcoins, there are even fewer Bitcoins in circulation in the market (as shown in Figure 1 below, the turnover rate can be obtained by comparing the transaction volume in the past 24 hours with the total market value, which can be evidenced by the comparison with the current hot BTC).

FIG. 1

So whenever there are over-the-counter capital comes into play, BTC is easy to push up prices, but we need to pay attention to that spot and sustainable rate have the funds to connect with each other in the contract, can be between contracts and spot can be traded in the day of the delivery turn active stage now, if the price of a simple anchor the BTC, will not come into the BTC spot inflows into BTCC to impact to BTC price formation, and BTCC is direct investment spot according to the announcement (shown in the figure 2 website instructions below)

Figure 2

In other words, the money that goes into the Bitcoin ETF will flow directly into the BTC spot, which will have a direct impact on the BTC spot price.

In BTC rising in the process of its market value has broken trillions of dollars, it is hard to imagine that BTC future space is how much, such as in figure 1 we see even at new highs in BTC within 24 hours after the entire network (volume/value) was 6%, and in recent days, on average, about 5%, on the one hand, is a small number of people hold a large amount of BTC, and these people could be a long-term digital currency market and most of the digital currency was stored, and truly circulation on the market may be less than 10%, a large number of liquidity chasing a small amount of BTC to circulate on the market, It will sharply push up the price of BTC for trillions of market value, the increment of 165 million funds are unimportant, but according to the average turnover rate is 5%, the increment of volume of nearly 5 billion, 165 million funds accounted for about 3% of the 5 billion market value, and the part on the market had expected incremental capital entry will drive the BTC prices rised when the BTC or do much BTC, this made the BTC to circulate on the market less, buying more, drive the BTC prices under the expected effect.

For speculation more important after buying will there be more people to buy, and this problem under a new round of fiscal stimulus in the biden government is particularly important, especially in the context of the present speculative atmosphere is strong, another round of fiscal stimulus for speculation is hard to say how many will enter the financial markets, so at least for speculation in another round of fiscal stimulus out before buying is a relatively safe.