Measuring the Effect of Spot Bitcoin ETF on Price Volatility
H2: Spot ETFs Could Reduce Volatility in Bitcoin Market
H3: Potential Liquidity Boost
The U.S. Securities and Exchange Commission (SEC) is being highly anticipated to approve exchange-traded funds (ETFs) that invest directly in bitcoin rather than in futures tied to the cryptocurrency. Analysts are expecting this approval to have a bullish impact on prices. However, there is a debate on whether it will reduce the price volatility which has made bitcoin less appealing as a haven asset.
H3: Reducing the Influence of Whales
Bitcoin’s volatility is largely influenced by the relatively small number of owners, known as “whales,” who hold a significant amount of the BTC token. A proposed solution to this issue is the introduction of a spot ETF which could potentially decrease the influence of these whales by widening the owner base.
The president of The ETF Store, Nate Geraci, stated that a spot ETF would attract a wider range of market participants, including institutions and financial advisors. This would theoretically increase the investor diversity and decrease volatility, making it harder for larger bitcoin whales to manipulate prices.
H3: Market Potential and Liquidity Increase
Galaxy Digital estimates that the addressable market size of a U.S. bitcoin ETF could be up to $14 trillion just one year after its launch and $39 trillion in the third year. Such a strong uptake could improve liquidity in the underlying asset, providing more stable trading conditions with less rapid price fluctuations.
H3: The Potential Impact on Volatility
There is some disagreement regarding the impact of spot ETFs on volatility. Richard Rosenblum, from GSR, expects volatility to decrease as the space matures and more institutional liquidity and infrastructure develop. On the other hand, Laurent Kssis, an ETF expert and crypto trading adviser at CEC Capital, argues that spot ETFs could become a source of BTC price volatility. He believes that cash creation for ETFs could inadvertently create volatility during periods of market fixing.
H3: SEC’s Potential Decision
Rumors have circulated suggesting that the SEC may require ETF applicants to work through cash creation, potentially leading to more volatility during market fixing periods.
In conclusion, while spot ETFs may reduce the influence of whales and increase liquidity in the bitcoin market, there is still a debate on whether they will ultimately decrease its notorious price volatility. The impending SEC decision on bitcoin ETFs will have a significant impact on the cryptocurrency market and its stability.
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