Crypto.news recently spoke with Matteo Greco of Fineqia International to discuss the current state of the Bitcoin ETF market and what we can expect in the future.

Bitcoin has emerged as one of the best-performing assets of the last decade.

It has transcended its status as a lesser-known peer-to-peer payments system, catalyzing the creation of an entirely new asset class that now boasts a market capitalization of over $1 trillion.

With the approval of 11 Bitcoin ETFs in sight in January 2024, traditional investors now have an easier path to gaining exposure to the leading cryptocurrency.

These investment vehicles are reshaping the crypto sector, having attracted billions of dollars in market capital. In addition to legitimizing Bitcoin, these have also attracted substantial interest of institutional actors.

Another factor that could impact the Bitcoin ETF sector is the potential approval of spot ethereum ETFs. Analysts expect these to capture 20% of investment flows currently heading into spot Bitcoin ETFs, further adding to the intrigue.

With these developments in place, the market continues to be a dynamic and unpredictable arena. The future of Bitcoin ETFs, while promising, is being shaped by a myriad of factors, including regulatory developments and macroeconomic trends.

How could these influence the market dynamics of these investment vehicles? How could this impact the price of Bitcoin?

According to Greco, inflows into Bitcoin ETFs are significant, but they are not the only factor influencing the price of Bitcoin.

Why does the substantial inflow of capital into Bitcoin ETFs not correspond to an equivalent increase in the market price of Bitcoin?

There are several factors that can increase or decrease the price, including supply and demand, liquidity and leverage. It’s not as simple as a single factor correlation to price action. However, it is incorrect to say that the entry did not support positive price action. When BTC ETFs were approved on January 10, the price of BTC was around $46,000. Currently, BTC has been ranging between $65,000 and $70,000 for weeks, indicating a 40% to 50% price increase following approval. At the time of approval, the total market cap of BTC was around $900 billion and now, with BTC at $67,000, it is around $1.3 trillion. This represents a $400 billion increase in total market value, while BTC ETFs saw around $16 billion in net inflows. This means that BTC market cap growth was 25 times greater than the value of net inflows into BTC Spot ETFs. This demonstrates that the impact of the approval and commercialization of these products has been substantial, extending beyond the direct influx into these financial products. It helped sustain demand for the asset due to positive sentiment and medium-term expectations about Bitcoin and the digital asset space in general.

Could the possible approval of an Ethereum ETF significantly change the investment landscape for Bitcoin ETFs?

Bitcoin (BTC) and Ethereum (ETH) are fundamentally different assets with distinct intrinsic characteristics. Bitcoin uses a Proof of Work consensus mechanism, which relies on miners, while Ethereum, like most digital assets, employs Proof of Stake, which does not require computing power to confirm transactions. This mechanism allows ETH and many other digital assets to offer staking rewards to investors, similar to dividends in traditional finance. BTC, however, does not have integrated staking rewards and therefore has different characteristics and cannot be classified as a security. Given the different characteristics and use cases of these two main digital assets, I do not foresee outflows from BTC ETFs moving to ETH ETFs. Instead, I expect net inflows into ETH ETFs, as they represent a distinct asset that new investors, or those who have already invested in BTC ETFs, may also want to gain exposure to.

⁠What impact could the introduction of an Ethereum ETF have on Bitcoin’s status as the leading cryptocurrency?

BTC was the most prominent cryptocurrency before ETFs were approved and will remain so after BTC and ETH ETFs are approved. If BTC loses its dominance, it will take considerable time for ETH to overtake BTC in market value. It will be interesting to watch traditional finance’s appetite for ETH as an asset. For comparison, BTC attracted around $16 billion in net inflows during Q1 and Q2, assuming fairly neutral flows for the remaining three weeks of Q2 for the sake of simplicity. ETH’s market capitalization is about a third of that of BTC, so proportionally it should attract about $5 billion in the six months post-launch to match BTC’s level. Higher entries would indicate more enthusiasm for ETH, and lower entries would suggest otherwise. Although it is challenging to make direct comparisons due to different market sentiments at the time of launch, this serves as a useful index for medium-term analysis.

Are traditional asset ETFs, such as gold, influencing Bitcoin market dynamics?

I would look at this from the opposite perspective. Traditional asset ETFs have been trading for a long time and the introduction of digital asset ETFs to the market represents increased competition. For example, the impact of BTC ETFs has been significantly stronger compared to the introduction of the first gold ETF in 2004. This indicates that investors have a defined appetite for digital assets, meaning that a portion of the allocation previously reserved exclusively for digital assets Traditional finance is now being driven towards digital asset ETFs.

As for the influence of BTC Spot ETFs on the market, these products undoubtedly reinforce BTC’s global recognition. With some of the most prominent traditional financial companies issuing and/or holding BTC, this leads to increased liquidity, greater security, and reduced spreads and commissions for investors and traders.

With the launch of ETFs, has Bitcoin generated enough institutional and retail interest to support its proposed role as a hedge against inflation?

I would not limit BTC to being classified solely as a hedge against inflation. Although BTC can serve as a hedge against inflation in the long term, it is not a safe hedge in the short term due to its high volatility. BTC has attracted strong institutional and retail interest for a variety of use cases, which highlights its versatility. Being fully decentralized with no CEO or board, investors can buy and trade BTC based on their preferred use case. Some people buy and hold BTC as a long-term investment or as a hedge against inflation. In countries with hyperinflation, people can use BTC as a hedge against short-term inflation. Others see it as a speculative investment, while some appreciate its decentralized nature and the idea of ​​a currency not issued by central governments. It is incorrect to classify BTC into a single category. Bitcoin is an asset that can be used for a variety of purposes depending on individual circumstances and preferences, and its general adoption is increasing across the world.

Would you classify Bitcoin as a traditional investment hedge like gold?

At its current stage, I would classify BTC more as an investment, similar to stocks, due to its high volatility, rather than as a hedge against inflation, like gold or bonds during periods of high interest rates. In my opinion, an inflation hedge should primarily offer high stability and serve as an alternative to fiat currency – something stable and liquid that can be easily used to pay for services and quickly converted into cash in an emergency. BTC falls short in this regard because its value can fluctuate drastically depending on market conditions, meaning that converting BTC to fiat currency can result in significant losses if done at an unfavorable time.

What does this mean for Bitcoin?

While BTC can serve as a long-term inflation hedge and a means of increasing purchasing power, it cannot be set as an inflation hedge by default. For example, during the last bear market, BTC experienced its biggest declines, coinciding with spikes in inflation and increases in interest rates. On the other hand, BTC performed well again when central banks stopped raising interest rates as inflation eased. If BTC were a short-term inflation hedge, it would have behaved oppositely, rising during high inflation and macroeconomic uncertainty and slowing when inflation eased and interest rates stabilized. This pattern indicates that BTC is currently traded more as a risky asset, similar to stocks, than as a hedge against short-term inflation. As mentioned previously, the decentralized nature of BTC means that investors can define its role in the market. Currently, most investors perceive BTC as a risky asset and trade it accordingly.

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