Bankless: Are our expectations for spot ETFs too high?
Original Title: "Are We Expecting Too Much from Spot ETFs?"
Original Author: Jack Inabinet
Translated by: Luccy, BlockBeats
Editor's Note:
Since the third quarter, the discussion about Bitcoin spot ETFs has been heating up, with the applications from institutions such as BlackRock, the world's largest asset management company, continuing to rise. With this, expectations for Ethereum spot ETFs have also increased. Many community members believe that the approval of Bitcoin spot ETFs will bring huge benefits to the cryptocurrency industry, but Bankless analyst Jack Inabinet points out, using the Canadian market sentiment and Grayscale Trust Fund as examples, that the demand for Bitcoin ETFs has already stagnated. The following is the original article translated by BlockBeats:
Participants in the encryption market are as enthusiastic as a group of spider monkeys who have eaten Skittles and drank Mountain Dew. They are confident that the approval of spot ETFs for encrypted assets (ETH and BTC) is imminent, and external investors are eager to join in.
This fully reflects the bullish expectations of the market for the approval of spot crypto ETFs. Analysts at crypto investment firm Galaxy predict that the approval of a spot BTC ETF will bring in $14.4 billion in demand and push BTC prices up 74.1% in the first year. However, today we want to adjust this expectation and emphasize why the evidence does not support the widely held view that the approval of spot crypto ETFs will bring in such a huge influx of funds.
Canada's Disappointment
The launch of a spot crypto ETF in the United States is not a groundbreaking move; Canada has had such a product for over two years! If the US spot crypto ETF is approved and unprecedented demand is set to explode, then the holdings of Canadian spot Bitcoin products are also expected to increase. However, since July 2022, the holdings of Canadian spot Bitcoin products have hardly changed.
Investment stories faced by Canadian investors are no different from those of American investors. Their lack of demand for spot Bitcoin products indicates potential demand in the US market, and suggests that the idea of Bitcoin as a hedge against inflation and devaluation is not enough to attract a large influx of funds in non-crypto fields in the current market environment.
争议并不重要
translates to
Controversy is not important
ETF experts may lead you to believe that by launching slightly superior investment tools, you can attract billions of dollars in capital inflows to replicate your investment portfolio. However, the evidence supporting this view is not sufficient.
They believe that investors are not interested in cryptocurrency futures ETFs because they are not ideal in tracking asset prices compared to spot products. The rolling expiration of futures contracts results in investors facing the positive and negative spread effects, where the price of the next month's contract may be higher or lower than the price of the expiring contract.
However, in fact, if the investment story is attractive enough, investors actually do not care about the specific form of the investment tool they are investing in. A successful investment tool, as long as it can provide popular story exposure, will attract capital inflows, regardless of how poor the product is.
The explosive growth of Grayscale Solana Trust (GSOL) is a good example. Currently, the fund's trading premium is as high as 869%, which confirms the above view.
Gray trust products such as GSOL and GBTC have performed relatively poorly compared to existing cryptocurrency futures ETF products, mainly due to their lack of redemption mechanisms. This means that the market value of the assets you purchase may actually be lower than the discount held by the underlying trust.
Despite the shortcomings of GSOL, investors still find Solana's narrative compelling enough to purchase the financial instrument at a high premium, leading to further market price imbalances. Currently, private placements (the means of creating shares) are closed, meaning that supply cannot meet market demand.
Bitcoin Futures Demand Remains Stagnant
If the approval of spot cryptocurrency ETFs does indeed lead to a significant influx of funds into this asset class, we expect futures products to continue to attract capital.
However, since July 2022, the circulating shares of the largest Bitcoin futures ETF (BITO) have remained basically unchanged. This trend deviation occurred in June 2023, when BlackRock first applied for a spot Bitcoin ETF, and in early November 2023, when the crypto market began to anticipate the imminent approval of spot Bitcoin.
External capital is using BITO to speculate on the launch of spot BTC ETF ahead of time, and the increased circulation shares can serve as a proxy for the market's view on the approval of spot BTC ETF. However, there doesn't seem to be real external demand for Bitcoin futures products, especially considering that the number of circulating shares is about to fall below 60 million before the recent spot ETF approval speculation.
Key Points
Despite the market's expectation that the approval of spot cryptocurrency ETFs will become a key factor in price in the second half of 2023, the spot BTC ETF is about to be listed, and the theoretical demand in the market will soon be put into practice.
Just a few weeks ago, some traders failed to fully consider the potential impact of the spot BTC ETF, and when approval came and the inflow of funds was disappointing, they may have once again stood on the wrong side of the trade.
Limited evidence suggests that in an uncertain macroeconomic environment, external capital is willing to purchase cryptographic assets. This has led potential buyers to focus on their own financial stability and address growing debt concerns, rather than pursuing the next 100-fold surge. Therefore, it is wise to consider increasing cryptocurrency investments only after observing whether spot ETFs can truly achieve their expected goals.
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