Trading volumes on SA exchanges surge. From Moneyweb.
Bitcoin’s price surged 20% in the past week, pushing it past $30 000 on Wednesday – and up to R560 000 on South African exchanges – on news that several major institutions have applied for spot Bitcoin exchange-traded funds (ETFs).
The one that grabbed the market’s attention is BlackRock, with more than $8 trillion under management, which applied last week to launch a spot bitcoin ETF.
Read: Bitcoin jumps to $28 000 on boost from BlackRock ETF filing
Invesco, with $1.5 trillion under management, and WisdomTree, with 80 ETFs and $93 billion under management, have likewise applied to US regulators to set up spot bitcoin ETFs of their own.
WisdomTree previously applied to set up a spot ETF in 2022, but was rejected by the Securities and Exchange Commission (SEC) in the US.
The flurry of recent ETF applications prompted speculation that previously hostile regulators have softened their stance.
Regulators have previously allowed futures contracts for bitcoin, but balked when it came to spot ETFs on bitcoin.
A spot bitcoin ETF would allow institutions to gain exposure to bitcoin price movements without having to own or take custody of the underlying assets. Investors would own shares in the ETF, rather than bitcoin itself, thereby hewing closely to investment mandates that in many cases preclude direct investment in exotic instruments such as bitcoin.
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There is no centralised market for bitcoin, so BlackRock will use the US-based Coinbase exchange’s custody services, as well as its pricing data.
This is potentially huge for bitcoin, as it opens the door to large-scale institutional investment. This week’s price surge reflects that optimism.
Institutions have been able to gain exposure to bitcoin through the Grayscale Bitcoin Trust (GBTC), which has also applied to convert to a spot ETF. The problem with GBTC is that investors are locked in for a minimum of six months before being allowed to sell, and that has created a discount to net asset value of 34%, and as much as 42% a week ago.
“What’s pushing the bitcoin price is the number of institutions like BlackRock applying to set up ETFs,” says Richard da Sousa, CEO of AltCoinTrader.
“Bear in mind that BlackRock has previously made 575 applications and only been turned down once, so their success rate is huge,” he notes.
“The entire bitcoin and crypto community have been waiting a long time for a spot ETF to be approved, and we finally think that it is going to happen. There are also a lot of institutions looking at opening exchanges, and this comes at a time when Binance and Coinbase are under attack [by regulators].”
“I think we are on the cusp of an incredible bull run, not only for Bitcoin and Ethereum, but for all cryptos. It’s going to be a very interesting space to watch over the next few months,” adds da Sousa.
Listen/read: 2023 has been kind to Bitcoin so far …
Marius Reitz, Africa general manager for Luno, says it is unlikely that asset managers like BlackRock, the largest in the world, would proceed with an ETF application without a good level of confidence that the regulatory concerns would be resolved.
“It also points to a strong and growing demand for bitcoin in investment portfolios.”
“Trading volumes on Luno in South Africa have increased by more than 50% since the start of this week,” adds Reitz.
Invesco argues in its application to the SEC that the absence of a spot ETF for bitcoin means investors are exposed to significant risk and will seek exposure through alternative means.
Those alternative means included holding digital assets at failed companies like FTX, Celsius Network, BlockFi and Voyager Digital. In each of these cases, investors have become unsecured creditors in the companies’ insolvency proceedings.
