• Galaxy Digital has predicted that a possible spot Bitcoin ETF could attract $14.4 billion into the market a year after approval.

• The report also estimated that $27bn would be attracted into the market by the second year after launch, and $39 billion by the third year. 

The discussion surrounding spot Bitcoin Exchange-Traded Fund took an interesting turn recently after the appeal court labeled the Grayscale Investments’ application rejection as “arbitrary and capricious.” Commenting on this, Eric Balchunas, Senior ETF Analyst at Bloomberg made a daring prediction that a spot ETF launch could be seen this year, and the possibility ranges from 65 percent to 75 percent.

This position was agreed upon by his colleagues, James Seyffart and Elliot Stein. According to them, the possibility of approval by 2024 is estimated to be around 95 percent. Several crypto experts have explained the impact on the crypto market. The latest comes from the crypto fund Galaxy Digital. In a research report, they stated that the first year after a spot Bitcoin ETF approval could attract $14.4 billion to the market. 

More on the Galaxy Digital’s Report on the Spot Bitcoin ETF

One interesting observation as captured in the report is the drawbacks of the existing Bitcoin investment products which include high fees, low liquidity, tracking errors, etc. On top of that, it is difficult to be accessed by a wide investor population. However, this can be addressed by the spot Bitcoin ETF. 

Firstly, the analyst observed that broker-dealers manage $27T as of this month. Banks manage $11 trillion and RIAs manage $ 9 trillion. In total, this is $48.3 trillion. This amount is applied across selected US wealth management aggregators as a baseline TAM. It is also important to note that the reach of the spot Bitcoin ETF approval is likely to transcend the US wealth management channel, and will attract a massive find inflow into the market. 

The $14.4 billion of inflows into the spot Bitcoin ETF market was predicted on the condition that 10 percent of total available assets in each wealth channel adopt Bitcoin with an average allocation of 1 percent. According to Galaxy Digital’s report, the spot-based ETF product would attract $27bn by the second year after launch, and $39bn by the third year. 

The report also admits that the prediction could be invalid when spot Bitcoin ETF approval delays or external factors cause the performance to be poor.

Of course, if Bitcoin spot ETF approvals are delayed or denied, our analysis would be altered by timing and access restrictions. Or if poor price performance, or any other factor, leads to lower-than-expected access or adoption to a bitcoin ETF, our estimates could prove too aggressive. On the other hand, we believe our assumptions on access, exposure, and allocation are conservative, so inflows could also be higher than expected.

According to the report, there could be a larger impact on the demand for BTC from the second-order effects of a Bitcoin ETF approval. 

In the near term, we expect other global/international markets to follow the US in approving + offering similar bitcoin ETF offerings to a wider population of investors. In addition to ETF offerings, a wide range of other investment vehicles are likely to add bitcoin to their strategies (e.g., mutual funds, closed-end, and private funds, etc.) – across investment objectives and strategies.

As of press time, 12 spot Bitcoin ETFs are currently awaiting approval from the SEC.

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