Crypto Fund Investments Skyrocket as The Anticipation of a Spot Bitcoin ETF Continues to Draw in Institutional Investors

December 11, 2023

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Surprisingly or not, things are looking up for crypto as the end of the year approaches. Although the growing crackdown on the cryptocurrency sector in the U.S. continues and the fragmented regulatory landscape for digital currencies is characterized by widespread uncertainty, there’s hope and optimism floating in the air in the crypto community at the moment.

Bitcoin and Ethereum’s recent price increase, as reported by the Binance price chart, stands as evidence that market sentiment is improving. At the time of writing, Ethereum was trading at $2,020, up by 13% in the past month, while the flagship crypto was standing at $37,097, marking an 8% monthly gain.

But what exactly is driving this new wave of confidence in crypto since the biggest challenges in the industry have yet to be overcome? By the looks of it, hope is all it takes for investors to dig deeper into their pockets and pour their money into crypto funds. At least, that’s what the latest data suggests.

Spot Bitcoin ETF hype leads to influx of crypto investments

According to a recent report by CoinShares, the leading European alternative asset manager specializing in digital assets, inflows into digital-asset investment products have increased substantially over the past week, amid speculations surrounding an eventual approval of a spot Bitcoin ETF.

The inflow to crypto exchange-traded products (ETPs) registered by reputable asset management companies like 21Shares, CoinShares, Bitwise, and Grayscale surged to $346 million. This is the highest crypto inflow rate recorded in the last three months, pushing the yearly amount to a whopping $1.5 billion. The spike in crypto inflows is also the largest since late 2021, when the market was at its peak before the crypto winter would cause the price of all digital assets to plummet.

As expected, most of the deposits were directed toward Bitcoin investment products, which accounted for $312 million of the inflows. That raised the value of total assets under management in crypto funds to approximately $45 billion.

Bitcoin remains the undisputable leader in the cryptocurrency market and the investment product of choice for the majority of individual and institutional investors looking to diversify their portfolios by tapping into digital assets.

However, Ethereum and other altcoin-based products such as Solana, Polkadot and Chainlink also chipped in, adding an additional $34 million to last week’s inflows, leading to a total inflow of over $100 million.

Regardless of which type of crypto products attract the largest number of investors, the reason behind this surprising increase in deposits to crypto exchange-traded products seems to be related to one event in particular: the growing anticipation for a potential spot bitcoin ETF approval.

What’s with the excitement around spot Bitcoin ETFs?

With all the talk regarding spot Bitcoin ETFs, even those who are not versed in crypto and don’t; pay much attention to the developments in the industry are wondering what’s causing the hype.

We should start by explaining that at the moment, retail and institutional investors who want to gain exposure to cryptocurrencies using traditional exchanges, without actually holding the assets, can invest in Bitcoin futures exchange-traded funds (ETFs). So, why exactly is there a need for spot Bitcoin ETFs when asset management companies already provide future Bitcoin ETFs?

The difference between future and spot Bitcoin ETFs is that while the first use contracts that allow investors to buy or sell Bitcoin at a predetermined price in the future, the latter would invest directly into Bitcoin instead of an underlying asset and thus give investors direct exposure to the live market price of the asset. So, it’s about investing in the actual asset versus using other financial instruments to gain access to Bitcoin.

Several attempts at launching spot Bitcoin ETFs have been made in the past by various asset management agencies, with no positive outcome. So far, the U.S. Securities and Exchange Commission, the government agency responsible for regulating the securities markets and protecting investors, has rejected all previous applications for a spot Bitcoin ETF on the grounds of and lack of adequate measures to protect investors against risks such as market manipulation and fraud.

This year, BlackRock, one of the world’s leading investment management companies, has refiled paperwork for a spot Bitcoin ETF, sparking a wave of similar applications from other reputable asset managers, including Fidelity, Franklin Templeton, Invesco, WisdomTree, VanEck, Ark Invest, and Valkyrie. All these companies are now waiting for the SEC’s decision, fueling hopes for an imminent approval.

Although digital currencies have taken big leaps toward mainstream acceptance since their inception, enjoying great popularity as an investment venue, they are still largely regarded as second-class assets, lacking the legitimacy of more established assets like stocks and bonds. So, even if crypto is no longer at the fringes of the financial system, it’s still not on par with fiat money and other financial products.

The SEC’s approval of spot Bitcoin ETFs would change the dynamics and signal that the crypto market is mature enough to welcome institutional investors, validating Bitcoins’ potential for going mainstream and boosting its legitimacy as a reliable asset class.

Therefore, if the SEC would give the green light on at least one of the spot Bitcoin ETF filings, there would be major transformations taking place in the crypto market. We’ve already gotten a small glimpse into what might happen when a false report about BlackRock’s filing being accepted caused the Bitcoin price to surge by 10% back in October.

If fake news can cause this type of commotion in the market, one can only imagine what the real approval of spot Bitcoin ETFs would mean for the crypto industry and the world of investment as a whole.

Experts believe that the first spot Bitcoin ETF could receive the seal of approval in January 2024. So, until the final rulings come out, we can expect the anticipation to grow and cause further waves in the market.

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