ETFs

Bitcoin Consolidates, Stirring Hope For Crypto ETF

With Bitcoin's market capitalization skyrocketing, there is still a quest to approve a Bitcoin ETF.

As of late Jan. 18, Bitcoin’s market value was flirting with $683 billion, putting the cryptocurrency in position to eclipse some other well-known assets, such as precious metals, by that metric.

“Bitcoin’s market cap of $666 billion is almost half of Silver’s at 48.61%, which was at $1.37 trillion as of January 17, 2021. Compared to the FTSE 100, Bitcoin’s market cap is 32.33% of the index’s $2.06 trillion,” according to TradingPlatforms.com.

While the notorious cryptocurrency surged over the last year, breaching the $40,000 level, its recent decline has some analysts and regulators concerned.

A Healthy Correction?

Despite the steep fall, however, analysts feel that it is a “healthy correction” that “was due a long time ago,” according to Naeem Aslam, chief market analyst at AvaTrade. This could provide an opportunity for Bitcoin-permanent bulls to jump on board, and make a more significant case for a Bitcoin ETF, which would allow for smaller trading sizes.

In addition, positive regulatory developments may serve to hasten the ETF approval process, or at least make an approval more likely.

“I know we saw some really good interesting regulatory developments last year. You look at the OCC and see some of the guidance they’ve been given banks around access to the asset class or even participating in some of these networks and more recently perhaps less publicized and a request for comment from the SEC around better destination about what it means to be a custodian in the space and even some questions about what it would mean for broker dealers to transact in tokenized securities. So we start to see more constructive engagement with the regulars and we think I will persist into the year just given what we’re seeing in terms of institutional as well as retail demand,” said Tom Jessop of Fidelity.

Concern #1: Illegal Activity

One of the issues for regulators in approving a Bitcoin ETF is that there is still a lot of unexplained chaos, including illegal activity and the lack of regulation, which can generate wild swings for investors and speculators. But Jessop says this activity has markedly decreased, and that the risk may be less as well.

“Illegal activity on the block chain has dropped 50% to 10, billion last year quote and just given the overall transaction volume increases on the Bitcoin blockchain as a percentage of total activity is something like 3/10 of a percent. So I think when we think about the concern, it is valid concern, but I think there are perhaps other places to look in the so-called non-digital economy where this activity is occurring with greater frequency and greater size. So I would not diminish the risk but I think the risk is potentially smaller than people might suggest it to be,” Jessop explained.

Concern #2: Bitcoin's Volatility

Another concern for investors and regulators are the wild swings that bitcoin undergoes, with it recently dropping 20% after surging last year. Analysts question whether this is a healthy pullback or something that could be more insidious.

“I think this is a healthy phase of consolidation for the market. I think given that this market is still very much in its adolescence it is hard to attribute price activity to specific factors,” Jessop added.

Jehan Chu, founder of cryptocurrency-focused venture capital and trading firm Kenetic Capital, said the steep drop in Bitcoin could also present a buying opportunity for new investors.

“This short term correction is both natural and needed, and is a great entry point for long-term investors as we quickly reach $50k this quarter and $100k by year’s end,” Chu told CNBC recently.

For more news, information, and strategy, visit the Crypto Channel.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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