- Bitcoin and other big cryptocurrencies moved sideways this week.
- Analysts at JP Morgan warned that the ETF could become a flop.
- They argued that existing products have gained little traction among investors.
Cryptocurrency prices have done well this year with Bitcoin, Litecoin, Ethereum, and Bitcoin Cash surging by double-digits. Most coins and tokens have outperformed traditional assets like stocks and commodities.
Bitcoin ETF could flop
Bitcoin and other cryptocurrency prices have jumped in the past 30 days mostly because of the optimism surrounding ETFs. Blackrock, the biggest asset manager in the world, was the first company to apply for a spot ETF in June.
Shortly thereafter, other companies in the financial services industry like Invesco, WisdomTree, and Ark Invest all filed for their ETFs. Unlike in the previous applications, these companies introduced a surveillance clause in the funds.
It is still to early to determine whether the SEC will approve these funds. Besides, the agency has rejected similar applications in the past. Also, Gary Gensler was quoted saying that these applications were not adequate.
Still, the Securities and Exchange Commission (SEC) is not the only entity that has the final say on this. That’s because the SEC has been sued by the parent of the Grayscale Bitcoin Trust (GBTC) in the US.
The company questioned the main reason for the SEC to deny firms with licenses to run their regulated ETFs. Analysts believe that the company has a strong case against the SEC.
Still, the biggest risk is that the trust could flop even when given the greenlight. In a note, analysts at JP Morgan warned that existing ETFs have attracted little investor interest. The report said:
“Bitcoin funds overall, including futures based and physically backed funds, have attracted little investor interest since Q2 2021, also failing to benefit from investor outflows from gold ETFs over the past year or so.”
Impact on Bitcoin and other altcoins
Institutional investors seeking access to Bitcoin have avenues to do so. For example, they can invest in the Grayscale Bitcoin Trust or ProShares Bitcoin Strategy ETF (BITO), which I wrote about here. Alternatively, they can invest in spot ETFs listed in places like Canada and Europe.
Still, these funds have not attracted huge inflows. BITO recently crossed the $1 billion asset mark while GrayScale Bitcoin Trust has over $19 billion in assets. At its peak, GBTC had much more assets.
Therefore, if the SEC rejects Bitcoin spot ETF, it means that the possibility of other altcoins like Litecoin, Ethereum, and Bitcoin Cash getting their ETFs will be almost zero.
Also, if the funds are rejected and Grayscale loses in court, the strong rally we saw recently could become undone.
