Bitcoin in spotlight as SEC approves new ETFs, ether rallies. Here’s why.

Welcome back to Distributed Ledger. This is Frances Yue, crypto and markets reporter at MarketWatch.

It’s a big day for the crypto industry. The U.S. Securities and Exchange Commission greenlighted several spot bitcoin
BTCUSD,
-2.00%
exchange-traded funds (ETF) for the first time on Wednesday, paving the way for a new class of investors to gain exposure to the virtual currency that could serve as a tailwind for price of the world’s most popular digital asset.

We’ve written about the implications for the crypto space here, including why a spot bitcoin ETF is a new wrinkle in the market.

Find me on X at @FrancesYue_ to share any thoughts on crypto or this newsletter.

Bitcoin dips

Bitcoin is up 0.8% over the past 24 hours to around $45,984 on Wednesday, while ether rallied 7.9% over the same period to around $2,507, according to CoinDesk data.

The approval of bitcoin ETFs was already priced in, said Mark Connors, director of research at 3iQ. The bitcoin ETFs are due to start trading on Thursday.

Investors are already looking past the bitcoin ETF approvals and looking forward to the potential approval of an ether ETF down the road, said Connors in a call.

Although, such expectations may be premature.

What to watch

Investors will be closely watching initial flows for bitcoin ETFs within the first 24 to 48 hours, after they started trading on Thursday.

The Proshares Bitcoin Strategy ETF
BITO,
the first bitcoin futures ETF that was launched in October 2021, garnered $1 billion in its first two days, according to Anthony Rousseau, head of brokerage solutions at TradeStation.

That compares with the SPDR S&P 500 ETF
SPY,
which reportedly raked in $20.8 billion on a single day in December.

We’ve previously written that the market has been pricing in roughly $1 to $2 billion initial inflows into the spot bitcoin ETFs.

“It’s essential to exercise caution and consider that immediate flows may largely comprise early adopters, primarily retail investors,” according to Rousseau at TradeStation.

“This could potentially entail recycled money, possibly falling short of the lofty expectations,” Rousseau said.

Rousseau said the crypto market may be prone to overestimation about the impact of the new ETFs in the short term, but may have underestimated their long-term implications for bitcoin.

The ETFs may unlock access to bitcoin for more investors, and even if a small percentage of over $100 trillion global assets managed by financial institutions is allocated to bitcoin, it could significantly drive up the crypto’s price. The factor is not yet fully reflected in bitcoin’s current valuations, noted Rousseau.

“It’s crucial to recognize that institutions can follow due process and navigate regulatory hoops to incorporate Bitcoin into their investment strategies, a journey that could span several months,” Rousseau said.

Investors also will watch fees of bitcoin ETFs by different issuers and whether they will trade at a premium or a discount to their net-asset value, according to James Harte, analyst at Tickmill Group.