With Bitcoin acting as a Risk-Asset, Will an ETF be a gamechanger?

The last few weeks haven’t been great for Bitcoin, to say the least. Since 1st September, BTC has dropped by as much as 15% on the charts, with some minor recoveries unfolding at present. While the market looked deprived of bullish momentum towards the beginning of September, the collapse over the last couple of weeks has taken the community by a little bit of surprise.

However, it isn’t only the digital asset industry that is suffering from a decline since major traditional stocks fell sharply too. Many suspect that the market may have spilled over Evergrande’s troubles in China. What of Bitcoin, then, especially when it’s still competing to be the premier store of value?

Even though Bitcoin is touted as a safe haven asset, during increasing macroeconomic risk, the collective digital asset industry drops alongside the largest crypto.

A similar outcome was observed over the past few days, with Bitcoin becoming more correlated with the major energy and tech stocks.

Additionally, data from Skew suggested that Bitcoin aligned with the S&P 500 to a new high as the 1-month correlation index hit 57%. In doing so, it surpassed its previous 2021 high. To make matters sourer, Gold performed extremely well during the 3rd week of the month.

The precious commodity acted as a requisite “safe haven” asset, preserving its valuation amidst collective market drawdown. In fact, it even gained by a minor 0.52% at the same time. Gold was ‘never’ not an SoV asset, but the argument has always been that Bitcoin is slowly turning out to be a better one. At the moment, Bitcoin’s characteristics as a risk asset indicate that the digital asset is still developing its intrinsic value. And, to be fair, the comparison has been made on a really temporary basis.

Amidst global market turmoil, Bitcoin continues to face more volatility simply because the asset has reached a distribution level that is attached with Gold and its large market cap.

Plus, the latest sell-off was largely spot-driven. Hence, there is also the possibility that Bitcoin will recover faster on the charts, just like it did in 2020.

Gold and Bitcoin will continue to co-exist in the market over the next few decades. Over the long term, it will be more viable to define whether Bitcoin or Gold is a better store of value. It is also important to note that over a period of 1 year, Bitcoin increment values have been far superior to Gold’s decremental returns. It is about picking battles at the right time, and at the moment, Gold has a temporary upper hand.

September hasn’t been too kind for the king coin and after a rather sad September BTC needed a massive push. So, as anticipation of Bitcoin’s September blues giving way to October highs heightened the market wished for a miracle to pump BTC price.

At this point, Bitcoin ETFs looked like the light at the end of the horizon, that may be able to pull the king coin up. Over the last couple of days, there have been speculations that Bitcoin ETFs could arrive by the end of October after Mike McGlone, a senior commodity strategist at Bloomberg Intelligence said the same.

He further pointed out that external events like the huge volume of trade that Canadian BTC ETFs saw were among the major factors that pressured the SEC towards a positive ETF decision even though nothing could be said about the decision as of now.

If Bitcoin ETFs are approved in the U.S. it won’t just be a major crypto milestone but would also aid the adoption of the top coin.

But before delving into how the future of Bitcoin ETFs would look, it would be helpful to see how ETFs have performed in the past.

When Gold ETF was introduced it turned out to be a real game-changer, in fact, in just seventeen years GLD ETF is about $57 billion in assets under management which makes it the 20th largest ETF in the world.

It received immediate success and GLD came to control over 1,000 tonnes of gold to back its value.

People have speculated that a part of the jump that saw gold saw, that is, from $300 per ounce to $1,600 between 2004 and 2010 was in fact driven by the physical gold ETFs ramping.

Further, when Grayscale launched GBTC (an ETF-like investment option) in 2013, from January to April 2013 BTC’s price rose by almost 1200%. In the second half of the year, its price rose by over 700% hitting the $1000 mark by December 2013. Bitcoin ETF’s could create an additional demand pressure that will have price implications.

An Ecoinometrics newsletter pointed out that already without a proper physically-backed Bitcoin ETF in the US, the ETF-like investment vehicles (including GBTC) capture 4% of the maximum supply. Another Bitcoin ETF could push that fraction to around 6% or even 8%.

Further, as BTC’s adoption is already high and there was growth in institutional sized capital since October 2020, the chances of a BTC ETF changing the game for good are high. Bitcoin transaction volumes continued to reflect big money moving in the space.

Further, institutional-sized capital of over $1 million transaction size represented around 82% of settled volume over the past week. This noteworthy growth in institutional sized capital kicked off in October 2020 and has been on an uptrend ever since.

However, as of now, nothing could be said for certain as SEC’s decision is pending. Other than that, SEC would need to allow for a Bitcoin ETF that is backed by an actual spot BTC. Nonetheless, a decision in the favor of Bitcoin ETF in the U.S. would be a game-changer for the asset.