Sizing the Massive Spot Bitcoin ETF Opportunity
Bitcoin is considered the non-sovereign reserve currency of the digital world. From an investment management perspective, it can diversify well-balanced portfolios and improve total risk-adjusted returns. However, despite various ways to gain exposure to Bitcoin, the absence of a U.S. spot Bitcoin ETF has been a significant gap in the market.
The road to a U.S. spot Bitcoin ETF has been long and challenging. The SEC has rejected all 33 applications over the years. However, recent developments, such as BlackRock’s entry into the fray and Grayscale’s court victory, indicate that approval may be closer than ever before. Industry analysts now estimate a 90% chance of approval by early January.
A U.S. spot Bitcoin ETF presents a massive opportunity due to the size of the U.S. capital markets. The U.S. accounts for 40% of total global fixed income assets and equity market cap. Additionally, ETFs represent a greater percentage of total assets in the U.S. compared to other jurisdictions. The U.S. ETF market is valued at $7.0 trillion, significantly larger than Europe’s $1.5 trillion market and Asia-Pacific’s $1.0 trillion market.
A U.S. spot Bitcoin ETF offers advantages over other trading vehicles, increasing the likelihood of greater adoption. ETFs provide lower fees and transaction costs, better liquidity, lower tracking error, and reduced operational complexity. Moreover, a spot Bitcoin ETF eliminates regulatory uncertainty and provides strong oversight and investor protections.
Financial advisors currently recommend Bitcoin to only 12% of their clients. However, 77% of advisors plan to recommend Bitcoin once a U.S. spot Bitcoin ETF becomes available. The introduction of a spot ETF could have a similar impact on the Bitcoin market as it did on the gold market. The launch of the first spot gold ETF resulted in significant inflows and contributed to the increased price of gold.
While there is still uncertainty regarding approval and the resulting impact on price, the potential approval of a U.S. spot Bitcoin ETF could be a game-changing moment for Bitcoin and digital assets as a whole.
(Note: This article has been edited by Ben Schiller.)
Author: Brian Rudick and Matt Kunke