Analysis of the Giant Effect How BlackRock’s Ethereum and Bitcoin Spot ETFs Affect the Crypto Market
Examining the 'Giant Effect' Impact of BlackRock's Ethereum and Bitcoin Spot ETFs on the Cryptocurrency Market
After submitting an application for a Bitcoin spot ETF to the U.S. Securities and Exchange Commission (SEC), it was revealed in regulatory filings on the evening of November 9 that global asset management giant BlackRock has registered an Ethereum Trust (iShares Ethereum Trust) in Delaware. Following the news, Coingecko data showed that the price of ETH briefly surpassed $2,000 and even broke through the $2,100 resistance level, reaching its highest point in the past year.
In fact, a similar situation is also happening with spot Bitcoin ETFs. In June of this year, BlackRock submitted an application for a spot Bitcoin ETF to the SEC, which also sparked extensive discussions in the crypto community. This has made the crypto community increasingly interested in the so-called “giant effect.”
We know that during the early stages of cryptocurrency development, the connection between Bitcoin, Ethereum, and the global macroeconomy was not very strong. However, over time, as the two largest decentralized networks in the world, Bitcoin and Ethereum have become more widely adopted, and their price trends have gradually aligned with global economic trends. The chart below shows the year-on-year growth rates of Bitcoin and global M2 money supply from 2014 to 2023:
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So, why do traditional financial giants’ spot ETFs help drive up the prices of Bitcoin and Ethereum?
Firstly, traditional financial giants’ spot ETFs can quickly bring liquidity to the crypto market. Spot ETFs incorporate cryptocurrencies like Bitcoin and Ethereum into traditional financial markets, allowing investors to trade them through traditional brokerage accounts, which improves investment convenience. Spot ETFs provide a secure way for investors to invest in cryptocurrencies, which will inevitably increase the liquidity of cryptocurrencies. Increased liquidity means investors can buy and sell cryptocurrencies more easily, which helps stabilize prices.
Secondly, traditional financial giants’ spot ETFs can lower the investment cost of Bitcoin and Ethereum. Spot ETFs reduce the investment cost of cryptocurrencies like Bitcoin and Ethereum to the level of traditional financial markets, lowering the barrier to entry for investing in cryptocurrencies. This will attract more individual investors to enter the cryptocurrency market. Although individual investors generally have smaller amounts of capital, they make up a large number, and their entry into the market will have a certain push on market prices.
In fact, this trend has already been seen in Bitcoin futures ETFs. Data doesn’t lie; since 2021, institutional investment preferences for Bitcoin exposure have been continually rising. According to statistical data disclosed by financial index analysis firm VettaFi (as shown in the chart below), as of November 2023, ProShares Bitcoin Strategy ETF (BITO) has become the most actively traded broad-based ETF, with significantly higher average trading volume than gold ETFs.
Lastly, the spot ETFs of traditional financial giants can attract institutional investors to enter the market: Spot ETFs expand the investment scope of cryptocurrencies such as Bitcoin and Ethereum to traditional financial market investors, thereby promoting the healthy development of the entire market. In fact, the approval of spot ETFs is seen as a symbol of legitimacy in the cryptocurrency market, which will attract more institutional investors to enter the cryptocurrency market. Institutional investors typically have large amounts of capital, so their entry will have a significant impact on market prices.
Another issue that the crypto community is concerned about is how the spot ETFs of traditional financial giants affect the prices of Bitcoin and Ethereum?
Firstly, in terms of timing, the upward trend in the prices of Bitcoin and Ethereum is closely aligned with the approval process of spot ETFs from traditional financial giants. On November 10, 2023, news emerged that the U.S. Securities and Exchange Commission (SEC) may approve 12 spot Bitcoin ETFs by November 17. As a result, the prices of Bitcoin and Ethereum rose by 6% and 8% respectively on November 10.
Secondly, in terms of market sentiment, the approval of spot ETFs from traditional financial giants is seen as a symbol of legitimacy in the cryptocurrency market, which will attract more institutional investors to enter the cryptocurrency market. Institutional investors typically have large amounts of capital, so their entry will have a significant impact on market prices.
Thirdly, from a technical perspective, the prices of Bitcoin and Ethereum broke through previous highs on November 10, indicating an increased bullish sentiment for both cryptocurrencies.
Of course, the application of spot ETFs by traditional financial giants is not the only factor influencing the cryptocurrency market. Other factors, such as the global economic situation, inflation expectations, and so on, can also affect investor confidence in cryptocurrency investments. However, overall, the introduction of spot ETFs by traditional financial giants is considered good news for driving the development of the cryptocurrency market.
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