Home Markets Will “User-Friendly” ETFs Amplify Market Impact Of The Bitcoin Halving?

Will “User-Friendly” ETFs Amplify Market Impact Of The Bitcoin Halving?

by admin

At its genesis, a policy known as “the halving” was embedded into the BitcoinBTC blockchain’s code to reduce the production of new bitcoin approximately every four years. The countdown to the next event is underway, just three months away — and the first to follow the introduction of highly anticipated bitcoin exchange traded funds (ETFs). Should the halving’s shift in supply stir market prices and escalate public attention, now even the crypto novice can instantly add bitcoin to their portfolio as easily as buying a stock (notably, BlackRock’sBLK bitcoin ETF became the first to achieve $1 billion in investor inflows last week, a milestone closely followed by Fidelity). Could a combination of halving-induced price movement and a streamlined buying experience be the catalyst for a surge of new investors? Or will the crypto world have to wait even longer for bitcoin ETFs to unlock the anticipated floodgates?

Crypto, as well as Web3 more broadly, has long struggled with high friction user experience (UX), which has impeded adoption across the entire space. Creating a better UX is often the key to unlocking greater adoption in a wide range of industries. This concept is not new; it’s a universal best practice spanning sectors from consumer products to finance.

Will better bitcoin buying experience be a turning point for adoption?

Early methods of buying bitcoin required an understanding of digital wallets, rigorous security measures, and complex exchanges. Platforms like Coinbase introduced user-friendly interfaces, making crypto considerably more accessible. However, the emergence of bitcoin ETFs has pushed ease-of-investing even further. ETFs integrate bitcoin investment into traditional brokerage accounts, offering a familiar experience to those already investing in stocks or bonds. Investors don’t need to trust a new provider, open a new account, or learn a new app — they can bypass the nuances of cryptocurrency exchanges entirely and make purchases from their existing accounts.

The ETFs also introduce new competitive pressures, with “fee wars” already breaking out among providers. Many scrambled to slash or eliminate management fees to attract early adopters in the days leading up to the U.S. Securities and Exchange Commission’s (SEC) approval of the funds. While Coinbase’s average retail take rate is estimated at 2.5%, many ETFs are available under 30 basis points with introductory rates of 0%. “It’s a quick way to get instant market exposure at a really low cost,” stated financial planner Ben Smith in CNBC.

What is the halving, and how could it impact price?

Every four years, the rewards given to bitcoin miners is reduced in half, a pre-programmed “halving” policy to counteract inflation by maintaining scarcity. Historically, these events have preceded rallies in bitcoin’s price, capturing the attention of the investment world. While there are many confounding factors that could have contributed to these rallies, the most direct way the halving impacts price is through a change in supply. If there are fewer bitcoin being made available and demand remains constant (or increases), price should rise. As we countdown to the next halving, buzz is intensifying, along with debate over how it will influence bitcoin’s trajectory. While many analysts forecast the price could pop after this supply constraint, others argue that the event is already priced in.

New ETFs could change market dynamics

After rejecting over 20 applications over the last decade, the SEC approved the first U.S. listed ETFs to track bitcoin on January 10 with the approval of 11 applications including from BlackRock, Ark Investments/21Shares, and Fidelity. The decision was hailed by the industry as a game changer. It is also a move toward much-needed regulatory clarity and formal recognition of bitcoin as a legitimate asset class, which could help to attract more investment and development.

ETFs have transformed investment landscapes since their debut in Canada in 1990 by packaging complex assets into accessible shares. The emergence of bitcoin ETFs marks a milestone, allowing everyday investors to access bitcoin’s potential without navigating the complexities of cryptocurrency exchanges. Matt Hougan, Chief Investment Officer of Bitwise Asset Management made the point with CNBC that this includes registered investment advisors, a “many trillion dollar market” who are carving out allocations of 1% to 5%. The power of this development has the potential to make the halving effect on bitcoin price even more pronounced, potentially increasing demand at the same time that new supply is constrained.

The double-edged sword of accessibility

However, with greater accessibility comes the potential for heightened volatility. The same features that make ETFs attractive will also make bitcoin’s price more sensitive to investor sentiment. If large numbers of investors can move in and out of the asset with ease, we may see sharper price spikes and drops, particularly around significant events like the halving. In an article in Cointelegraph, Basel Ismail, CEO of investment analytics company Blockcircle, made a comparison with 2004’s gold ETF launch that demonstrated a feedback loop correlated to cash transactions in the physical gold market, suggesting that the bitcoin ETFs could serve as accelerants to bitcoin’s price movements — and thus increase overall volatility.

A cascade of additional criticisms have accompanied the ETFs’ debut. The mismatch between bitcoin’s 24/7 market and the limited trading hours of the traditional financial system the ETFs operate within could leave investors unable to trade during periods of after hours volatility. Crypto purists will point out that if you don’t hold the keys, it’s not your crypto, and the multiple layers of obfuscation that an ETF imposes between an individual and their asset is an affront to the intent of bitcoin’s original design to disintermediate financial services institutions. Others argue that mining industry margins are already under so much pressure, that this halving event could drive miners — who are responsible for validating transactions and maintaining the integrity of the blockchain — out of the market.

A new era for bitcoin?

As we approach the next bitcoin halving, the advent of ETFs may mark a pivotal turn in cryptocurrency investment. The true test now is whether this streamlined access will catalyze a watershed moment for wider acceptance of bitcoin, or whether it will further challenge the market’s stability. What is clear is that, as we edge closer, the anticipation will build towards what will undoubtedly be a defining chapter in bitcoin’s narrative, whatever the outcome may be.

Follow me on Twitter or LinkedInCheck out my website or some of my other work here

You may also like

Leave a Comment