The United States will not easily relinquish the bargaining power from Wall Street. The approval of the ETF will bring about a superimposed effect of bargaining power.
Author: Hedy Bi, OKEx Research Institute
One day before the news of the approval of the Bitcoin spot ETF application landed, SEC Chairman Gary Gensler issued a tweet on X warning of the risks associated with virtual assets. It is this statement that led the market to believe that the probability of the approval of the Bitcoin spot ETF application has increased, and the price of Bitcoin broke through the high point of $47,000 this morning.
Source: Bloomberg
Not only is the market sentiment so high, but the applicant is also making sufficient preparations. ARK Invest (ARK), an asset management company founded by Catherine Wood, will be the first applicant to receive the SEC's final reply for the Bitcoin spot ETF. At the end of last year, ARK had sold all of its remaining GBTC positions and used half of the proceeds of about $100 million to purchase BITO, "possibly as a liquidity transition tool to maintain the beta value of Bitcoin," and will include it in ARKW (ARK Next Generation Internet ETF) or ARKB (Ark 21Shares Bitcoin ETF, the Bitcoin spot ETF that ARK is applying for). All parties in the market are ready, and if the US SEC approves the Bitcoin spot ETF, it also means that the 10-year-long battle since 2013, in which institutions have been applying to the SEC for the approval of the Bitcoin spot ETF but have been consistently rejected, may come to an end!
The United States will not easily relinquish the bargaining power from Wall Street. The approval of the ETF will bring about a superimposed effect of bargaining power.
If the spot ETF threshold is lifted, public funds, private equity funds, and individual investors will be able to easily participate in the virtual asset market on traditional stock exchanges, just like buying stocks, and directly hold Bitcoin, removing the restrictions of compliance channels. The market effect brought about by the amount of funds in the short term is only one aspect. More importantly, the United States will enhance its bargaining power in the crypto market through ETFs and become a rule maker in the industry.
With Bitcoin mining power shifting from China to the United States, the United States' Bitcoin mining power accounts for 40% of the global share, ranking first in the world. This means that the United States has already gained its bargaining power on the supply side.
Figure: Global Bitcoin mining power chart
Source: worldpopulationreview.com
If the spot ETF is approved, it means that, on an institutional basis, holding and trading data will be disclosed, providing more market transparency for regulatory agencies and market participants. With this information, regulatory agencies can better supervise market activities and reduce the risk of market manipulation and fraud. As shown in the figure below, let's make an analogy. Although it is easy to trace, track, and verify "every drop of water" on the chain, it is difficult for regulatory agencies to regulate "every drop of water". If we gather these drops of water together, put them in glass containers, and delegate these regulatory requirements to each "glass," regulatory agencies will be better able to formulate rules and manage them.
For the United States, if the ETF is approved, it will further establish the United States' position as a rule maker and market leader in the crypto market. Regardless of whether the Bitcoin spot ETF is approved, the United States will not easily give up this huge advantage.
Figure: OKG Research - Compliance channel for ETF vs. no compliance channel for ETF
In addition, the expected approval of the Bitcoin spot ETF is also evident on the supply side: the competition among miners is also very intense. According to OKLink data analysis from OKEx Research Institute, the hash rate has been rising at an average rate of 5.17% over the past three months, compared to an average monthly growth rate of 1.76% during the same period last year, indicating that the competition among miners (supply side) is more intense.
Figure: Bitcoin hash rate
Source: OKLink
From the perspective of operating costs, OKLink data shows that the unit mining power income of miners has been continuously decreasing at a rate of 8% over the past three months (Figure 2), while the average monthly rate during the same period has increased, at a growth rate of about 1.55%. In the case of a decrease in unit income, the supply side is still selling off to maintain operating costs.
Figure: Bitcoin miner unit mining power income
Source: OKLink
The new market is ready to go, and the existing market is more determined
Although the news of the ETF has been long-awaited in the market, from the OKLink on-chain data, it can be seen that due to different time and risk preferences, new investors are more willing to bear the opportunity cost of waiting for a compliant channel's convenience, giving up the potential profits of holding on-chain early. Existing market participants—long-term investors, Bitcoin supporters, and institutional investors who have long been bullish on Bitcoin—are more concerned about the long-term value of Bitcoin.
As some early institutional investors who were bullish on Bitcoin have already participated through other means, such as ARK selling all of its remaining GBTC positions and injecting BITO (Bitcoin Strategy ETF, which invests in Bitcoin futures and not in Bitcoin), and Grayscale seeking to convert GBTC to an ETF. They may be more focused on the fundamentals of Bitcoin, technical development, and market demand, and are relatively less affected by short-term market fluctuations and ETF approval news.
Observing the OKLink on-chain data from OKEx Research Institute, it can be seen that these news did not bring much excitement to the on-chain ecosystem. Over the past three months (from October 10th to January 7th), the total number of Bitcoin (BTC) on-chain addresses has been steadily increasing, with an average monthly growth rate of 1.16%. Compared to the same period last year, the growth rate remains the same.
Figure: Total number of Bitcoin on-chain addresses
Source: OKLink
In addition, by observing the number of active addresses, it is found that the number of active addresses did not reach a peak when Bitcoin ETF-related news broke, but rather was relatively high in December 2017 and March 2021.
Figure: Daily active addresses of Bitcoin
Source: OKLink
A flourishing scene, the era of rampant growth is no longer present
"Are you planning to start over?"
Even if the US BTC spot ETF is not approved, the market will not return to the "era of rampant growth." According to CoinGecko, there are currently eight markets globally that allow the operation of spot cryptocurrency ETFs, including Canada, Germany, Switzerland, as well as tax havens such as the Cayman Islands and Jersey. However, it has not sparked the same enthusiasm in the market as waiting for the approval of the US spot ETF, which once again proves the significant impact of the superimposed effect brought about by the opening up of the supply side and channels on the market.
Just as the ETF drama in the US is "full of twists and turns," the highly anticipated Hong Kong has already taken that step in 2023. On December 22, 2023, the SFC even issued multiple circulars, stating that they are "ready to accept applications for the approval of spot virtual asset ETFs." Taking Hong Kong as an example, according to the KPMG 2023 Private Wealth Management Report, as of the end of 2022, the total value of assets under private banking and private wealth management in Hong Kong was HK$8.965 trillion. If 1% of the funds flow through a Bitcoin spot ETF, approximately $11.6 billion in funds will enter the market.
According to OKEx Research Institute, several financial institutions are currently planning to issue Bitcoin spot ETFs in the first half of the year. This level of competition in the tens of billions will also force the US SEC not to easily reject the spot ETF that is ready to go.
In comparing the differences between Hong Kong and the US regarding Bitcoin spot ETFs, there are two points worth noting in the market:
In the circular on December 22, the Hong Kong SFC stated that they will support both cash and physical modes, providing investors with more choices; the US SEC adopts a mandatory cash creation and redemption strategy, and the use of cash creation and redemption is also to reduce the risk of market manipulation, and through cash creation and redemption, it is also a way to indirectly control AP and squeeze their profit space for risk-free arbitrage. Because if AP attempts to manipulate market prices through operations in the primary and secondary markets, it may cause market instability. In addition, in the case of physical creation and redemption, market makers can receive Bitcoin in exchange for ETF shares, improving tax efficiency. Financial institutions on the other side of the Pacific also hope to achieve multiple channels. According to CNBC, Fidelity and BlackRock have sought approval for both cash and physical creation and redemption to cater to investors who already hold Bitcoin but seek convenience in market trading and taxation.
Currently, the US has submitted applications for 8 Bitcoin ETFs, planning to trade on one of three exchanges: Nasdaq, Cboe BZX, and NYSE Arca. Among them, the exchange with the largest proportion is Cboe BZX, accounting for 5 out of 8 applications. Unlike the trading platforms where the US applicants have experience with other financial instruments, Hong Kong's circular on December 22 only stated the regulations and practices that intermediaries need to meet when distributing ETFs.
If the US BTC spot ETF is approved and traded on one of the three trading platforms according to the application materials, with such a case as a reference, HKEX will be more motivated to consider providing a trading platform for Bitcoin spot ETFs issued by Hong Kong companies.
Figure: On December 22, the SFC issued multiple circulars
Source: SFC
Whether or not the US ETF is approved tomorrow, time passes, and the "Wild West" of the crypto market will never return. In 2024, the crypto market will definitely be "flourishing."
免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。
