After so many years of waiting, the U.S. Securities and Exchange Commission’s (SEC) approval of the first BitcoinBTC-based Exchange-Traded Fund (ETF) is finally upon us.
The Bitcoin exchange-traded fund (ETF) is finally here. Eagerly anticipated by a market that has seen the price of Bitcoin skyrocket in recent months, the much-awaited green light by the SEC is poised to bring billions of dollars in fresh funding into the cryptocurrency sector in the coming years.
But far more than providing a renewed influx of funding, the emergence of Bitcoin ETFs is also set to positively impact even the most far-flung corners of the cryptosphere in a number of unique ways.
What is a Bitcoin ETF?
Traditionally, an ETF is a pooled security that tracks price indexes of various assets like commodities. Akin to mutual funds, an ETF allows investors to benefit from the price movements of its underlying assets without interacting with them directly. The latter is the main reason why a Bitcoin ETF has been so coveted over the past years. While BTC’s legal status is still somewhat opaque, a Bitcoin-based ETF could enable regulated entities to invest in it indirectly — without ever having to handle BTC itself. Furthermore, unlike mutual funds, ETFs can be freely traded on stock exchanges.
Why It Matters
Up until now, the vast majority of regulated financial entities were precluded from investing in Bitcoin, relegating the first cryptocurrency to that of a relatively niche asset. With the launch of the first ETF, however, IRAs, 401Ks, pension funds, and prominent institutional players have gained the ability to invest in BTC, opening up the door for mass adoption on an unprecedented scale.
Now, this is one of, if not the most important milestone for legitimization of Bitcoin, officially making the crypto a real and widely recognized asset that can be leveraged by regulated institutions. While many crypto enthusiasts have never doubted the value or tangibility of BTC, the SEC’s approval of a Bitcoin ETF has enormously boosted the crypto’s legitimacy and credence. As a result, this will likely have a ripple effect across the whole blockchain industry, placing it under the global spotlight like never before.
Institutional Adoption Skyrocketing
In the first year alone, the Bitcoin ETF could generate at least $14.4 billion in inflows from big institutional investors, according to a recent research report from crypto firm Galaxy Digital. While this is a stellar figure by itself, it becomes even more impressive considering that existing traditional products like trusts and futures have a total value of roughly $21 billion today. This means that in just one year, institutional BTC investments could reach heights comparable with proven traditional instruments that have existed for decades. Moreover, Galaxy predicts that inflows in Bitcoin ETFs could reach $27 billion in the second year and $39 billion in the third.
Meanwhile, analysts at CryptoQuant noted that approval of Bitcoin ETFs could add $1 trillion to the overall market capitalization of all cryptocurrencies combined. While still predictions, these colossal figures show that not only will the SEC’s approval of the Bitcoin ETF give a tremendous boost to the price of BTC itself, but it could also positively affect the whole sector thanks to a massive influx of institutional capital.
Fostering Blockchain Innovation
Following such a seismic shift, Bitcoin, in particular, and the blockchain industry will turn much more than just investors’ heads. Countless talented developers who were perhaps apprehensive of web3 will start embracing decentralization, bringing their vast web2 experience and expertise to blockchain.
Consequently, by reinvigorating the blockchain space, the first Bitcoin ETF will also likely result in increased adoption and explosive growth of sectors like Decentralized Finance (DeFi), GameFi, and real-world asset tokenization, among others, as well as a massive expansion and acceleration of Layer-1/2 network development.
Web3 games, in particular, are often considered the “next big thing” in the world of blockchain, with this sub-sector being one of the fastest growing over the past year. Notably, even the dreaded “crypto winter” had much less impact on GameFi than on other facets of web3 due to the uniqueness of its offerings.
A significant part of this is the nature of gaming-focused collectibles. This is because, unlike “traditional” digital offerings such as artworks or loyalty rewards, gaming NFTs offer players real utility and value, which makes their speculative aspects more of an afterthought. As such, web3 gaming is poised to become even more popular as web3 will be getting exponentially more traction after the launch of the first Bitcoin ETF and the increased adoption that will inevitably follow.
Bitcoin ETF and Real-World Asset Tokenization
Real-world asset (RWA) tokenization is one of the most promising use cases to arise from the crypto sector and one that interests mainstream institutional players the most — as evidenced by the inroads made in this area by Goldman Sachs, JP Morgan, Citi, Franklin Templeton, and many others.
Tokenization enables fractional ownership of real-world assets like art, real estate, precious metals, and more, allowing for the subdivision of these assets into smaller, more affordable units that can be easily accessed by the average investor. RWA tokenization could soon be further catapulted into the public consciousness as the eager acceptance of complex financial instruments like ETFs signals the market’s readiness for similar financial products.
What’s more, smaller financial service providers beyond the major institutions could be encouraged to explore tokenization thanks to the increased clarity and credibility brought about by the success of the Bitcoin ETF.
Supercharging Web3 Adoption
This lightning-fast evolution will also spill into our everyday lives. As Bitcoin and, by extension, web3 promptly go mainstream, numerous next-gen decentralized solutions will pick up the steam, introducing millions and billions of new users to countless benefits decentralization brings. This includes full ownership of people’s private data in the form of self-sovereign digital identities, allowing them to always stay in control of their information and choose with whom they want to share it. The general public will also have a much easier time accessing web3, allowing the nascent sector to rival the legacy Internet.
Namely, this newfound drive could propel web3 domains to new heights, allowing the decentralized iteration of the Internet to truly spread its wings and finally take its rightful place alongside the traditional DNS system. As more websites and platforms become increasingly decentralized, they no longer have to rely on single third-party entities prone to their own biases and security risks — making the internet significantly more accessible, democratic, and inclusive.
How the ETF Will Impact Public Perception of Crypto
It’s likely that much of the fear and uncertainty surrounding cryptocurrency since its inception will be negated thanks to the Bitcoin ETF, which introduces a de-risked, regulated approach to cryptocurrency investment for the first time.
In turn, this could drastically alter the perception of Bitcoin as a risky, speculative asset class into something along more traditional lines while elevating the concept of Bitcoin into a household name, spurring enhanced public awareness and understanding of cryptocurrencies in general.
Following a tumultuous 18 months in which the cryptocurrency industry was shaken by a series of scandals, such as the fall of FTX, the collapse of Terra/Luna, and the implosion of Silicon Valley Bank (SVBVB), the Bitcoin ETF is shaping up to the springboard by which the blockchain arena bounces back — potentially better than ever before.
What the future holds
While the immediate effect of the SEC approving the first Bitcoin ETF will undoubtedly be strictly financial, the move will likely have a much more far-reaching impact on the blockchain industry. By legitimizing BTC and giving big institutional players to invest in it, the regulator has also provided a colossal impetus to the whole blockchain space that envelops a plethora of sectors such as DeFi, web3 gaming, digital IDs, real-world asset tokenization, and many mo
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