With the opening of the ‘Bitcoin spot ETF era’ and the rumor of ‘2 million won per unit’, what will change?

Markets welcome approval of U.S. Bitcoin spot ETF
Bitcoin price surged by about 3% immediately after the approval was announced
High price volatility and the possibility of crime remain concerns

The approval of the Bitcoin spot exchange-traded fund (ETF), which is considered the biggest topic in the virtual asset market this year, has been decided. As a result, Bitcoin, the leading virtual asset, was recognized for its asset value to a certain extent, and a legal channel was established through which institutional funds from around the world could flow in. The virtual currency industry, which has been experiencing ‘Crypto Winter’ (virtual currency recession) for more than a year, is all cheering. However, investors’ caution is required as the volatility risk unique to virtual assets has not disappeared.

Virtual asset Bitcoin enters the institutional system

The U.S. Securities and Exchange Commission (SEC) announced in a statement on the 10th (local time) that it has approved 11 Bitcoin spot ETFs applied by Grayscale Investment and Bitwise. “The most sustainable path is to list and trade a Bitcoin spot ETF,” SEC Chairman Gary Gensler said in a statement, citing a federal appeals court decision that found the SEC lacked an adequate explanation for not approving Grayscale’s proposed ETF. “I think this means approving it,” he said.

The SEC’s approval of the Bitcoin spot ETF means that it views Bitcoin as a recognized asset like stocks, oil, or gold. Bitcoin, which could only be bought and sold through virtual asset exchanges such as Bithumb and Binance, can now be traded along the same lines as other assets.

The basis for approval was the loss of a lawsuit against Grayscale in August of last year. Previously, the SEC rejected more than 20 applications related to spot Bitcoin exchange-traded products (ETPs), including the Grayscale application, from 2018 to March 2023, but the decision was reversed after the court determined that the reasons for rejecting listing were not sufficient. done. Chairman Gensler emphasized, “The committee will evaluate whether it is designed to protect investors and the public interest, and whether it complies with the Securities Exchange Act and the regulations below,” adding, “This approval will include specific protection measures for investors.”

Of the 11 ETFs approved for listing this time, 6 are scheduled to be listed on the Chicago Board Options Exchange (CBOE). Three are traded on the New York Stock Exchange (NYSE) and two are traded on Nasdaq. CNBC predicted that Grayscale Bitcoin Trust would be the first hitter. BlackRock Asset Management and Fidelity are also expected to release competing products.

Expected inflow of 130 trillion won, forecast to reach 200 million won per unit

The most anticipated change with this approval is the large influx of new funds. In particular, financial institutions can approach it like a commodity ETF by utilizing existing financial infrastructure. This is good news for institutional investors who have been reluctant to purchase Bitcoin due to inconveniences in various aspects such as taxation, accounting, and trust. As such, it is expected that there will be a significant inflow of funds from institutional investors who were hesitant to invest in Bitcoin due to regulatory uncertainty.

The amount of funds currently predicted by traditional financial companies exceeds 130 trillion won. In fact, as expectations grow that the SEC will soon approve Bitcoin spot ETF trading, the price of Bitcoin has soared by as much as 70% since October of last year. Standard Chartered (SC), a large British bank, said in a report on the 8th (local time), “If the Bitcoin spot ETF is approved, up to $100 billion (approximately KRW 131 trillion) will flow in this year alone.” He also analyzed, “This is an opportunity to generalize investors’ Bitcoin investment.”

The market was immediately excited by the news of approval. Bitcoin began to rise based on expectations from the previous day, and soared by nearly 3% immediately after the approval announcement was made. As of 7 am on this day, Bitcoin is trading at 62.28 million won, up 2.88% from the previous day. Additional increases are expected due to the inflow of funds that causes price increases. In particular, predictions are being raised that with this approval, Bitcoin will exceed 100 million won per piece and reach 200 million won.

Analysis is also gaining momentum that the half-life approaching in 100 days will lead to this. Bernstein, an American investment bank, said in a report on the 4th, “Bitcoin is expected to break a new record this year and rise to a maximum of $150,000 (approximately 198.15 million won) by 2025,” adding, “It is expected to move from the traditional market to a virtual asset.” We are entering an unprecedented era of massive inflow of capital. In particular, bullish ingredients such as Bitcoin halving and ETF marketing still remain in abundance.” Beyond simply favorable news in terms of price, there is also an analysis that the approval of the spot ETF will serve as an opportunity to expand the use of Bitcoin. Currently, Bitcoin is going through the process of being accepted as a means of storing value, and it is predicted that the approval of spot ETFs will expand the base of such use cases to the traditional financial sector.

“Bitcoin is still a speculative and volatile asset” 

Although the market is presenting a rosy outlook, it is difficult to say that financial authorities in major countries, including the SEC, have turned in favor of virtual assets. In a statement on the 10th, Chairman Gensler solidified his existing position on virtual assets, saying that regardless of ETP approval, he “does not approve or support Bitcoin.” The SEC’s use of the name ETP (Exchange Traded Products) instead of ETF is interpreted as an expression to emphasize its jurisdiction over Bitcoin ETF and other various derivative products in the future. ETP is a higher-level concept that includes ETFs, and includes ETFs as well as ETNs (Exchange Traded Notes) and ETCs (Exchange Traded Commodities).

The SEC also warned that Bitcoin spot ETFs can cause significant losses to investors due to poor investor protection, high price volatility, and the possibility of crime. This is also the reason why Bitcoin ETP approval was previously refused. “I would like to note that Bitcoin is a highly speculative and volatile asset that is also used primarily for illicit activities, including ransomware, money laundering, sanctions evasion, and terrorist financing,” Gensler said. “We do not approve or support Bitcoin. I don’t do it. “Investors should be cautious about the numerous risks associated with Bitcoin and products whose value is tied to cryptocurrencies,” he explained. Although it was approved for legal reasons, it is interpreted as implying that the risk of investing in Bitcoin is still high.

Some point out that the potential risks of ETFs, which are high-risk, high-reward products, should not be overlooked. Goldman Sachs warned that “demand across institutional investors may not be immediate,” and that “long-term and sustained demand for physical Bitcoin ETFs will depend on the suitability of the product and the rate of adoption by the broader market.” He added, “Investors will rely on the ETF manager’s management strategy ability without owning physical Bitcoin,” and added, “Trading hours for ETFs are also time-limited, unlike 24-hour, 365-day trading on cryptocurrency exchanges.”

Meanwhile, it is not immediately possible to purchase overseas Bitcoin spot ETFs in Korea. This is because the financial authorities have issued an authoritative interpretation that domestic securities firms brokering Bitcoin spot ETFs may violate the existing government’s position on virtual assets and the Capital Markets Act. The conclusion is that since Bitcoin is not an underlying asset under the Capital Markets Act, listing of spot ETFs as well as trading are illegal. Accordingly, it is possible to go through a foreign securities company such as Goldman Sachs, but it does not seem easy for individual investors to access it. However, room for revision of the law remains open. An official from the Financial Services Commission said, “Domestic regulations on virtual assets are being established, and as there are overseas cases, we plan to review them further.”