Latest report by JPMorgan analysts said the highly anticipated Bitcoin ETF could hurt the price of Bitcoin in the short term.
An institutional investor exit from the Grayscale Bitcoin Trust (GBTC), which currently appears to be the only way for some funds and companies from Wall Street to invest in Bitcoin, could lead to a drop in price, according to analysts.
Due to legal regulations and a number of other restrictions, some financial institutions and funds cannot buy Bitcoin directly or even buy Grayscale shares directly. The only way they can invest in bitcoin is to buy GBTC shares at a premium on the secondary market. If a Bitcoin ETF is approved, that premium will decrease and GBTC shares will not be as attractive as they used to be.
Prospect of a Bitcoin ETF, and the resulting reduced GBTC premium, could lead some institutional investors buying in the second half of last year to sell when the six-month lock-in period expires. Which could further increase downward pressure on GBTC and the price of Bitcoin, analysts said.
Recent data shows that there are currently 607 thousand BTC in the Grayscale Bitcoin Trust. That’s about 3.3 percent of the amount of bitcoin in circulation.
Report also noted that the likelihood of approval of a Bitcoin ETF has increased with the change of administration of the U.S. Securities and Exchange Commission (SEC).
Following a change in SEC management late last month, VanEck’s company quickly applied for a Bitcoin ETF.
What is an ETF and why is a Bitcoin ETF important?
ETF stands for Exchange Traded Fund, i.e. Exchange Traded Fund or Exchange Traded Fund. Simply put, as the name suggests, it refers to the Exchange-Traded version of ordinary mutual funds. ETFs bought and sold at spot prices, such as stocks, can have one or more underlying assets. The fund copies the returns of these assets and presents them to investors. Assets under the management of the top 10 largest ETFs, which are hugely popular in the world, exceed $ 1 trillion.
If a Bitcoin ETF is approved, Bitcoin will also receive a share of this trillion-dollar market. It is thought that this will have a significant impact on the price.
First ETF for gold was approved in March 2013. After that, the price of gold increased by more than 300%. There is an expectation that the ETF could affect Bitcoin in a similar way.