Home etftrends.com Disruptive Tech Theme of the Week: The Bitcoin Ecosystem

Disruptive Tech Theme of the Week: The Bitcoin Ecosystem

Some great content has already been published on what’s going on in bitcoin right now on VettaFi’s Crypto Channel, including an insightful article from VettaVoice contributor Jennifer Nash when bitcoin broke $35,000. Here we are, just a brief time later, and bitcoin prices are now above the $37,000, marking its highest level since May of 2022.

What’s Behind Bitcoin’s Move Higher?

The factors behind its recent price move are multifaceted.

  1. End of Rate Hike Cycle – Hopes that the Federal Reserve finishes increasing interest rates sparks a rally in all risk-sensitive assets.
  2. Digital Gold – Bitcoin’s price dynamic is somewhat unique in that it also benefits from global instability along with other hard assets like gold. The conflict in the Middle East has sparked a round of “digital gold” trades as a safe-haven, store-of-value play.
  3. Tight Supply – The surge in near-term demand comes at a time when bitcoin miners are selling as much as they can mine these days ahead of the so-called “halving” next year, and long-term HODL’ers (Hold on for Dear Lifers) are unwilling to give up their tokens. Top miners sold more tokens than they produced last month, cashing in on October’s price rally, creating a bitcoin liquidation-to-production ratio last month of 104%.
  4. April 2024 Halving – April’s “halving,” as the name implies, will reduce the amount of tokens going forward, making the reward less valuable for miners after the halving but more valuable to long-term holders due to a halving of supply. Historically, most of bitcoin’s gains come directly after halvings, which only occur every four years.
  5. Spot ETF Filings – Certainly another factor in bitcoin’s recent rise is the increasing likelihood that the SEC will approve a spot version of a U.S. Bitcoin ETF, creating more demand at a time of limited supply. And a U.S. spot ether approval could be in the works as well.

Crypto Spring in the Air?

All of this has led investors coming out of the Crypto Winter to be hopeful that Crypto “Spring” is in the air. For those unfamiliar with the seasonal analogies, the four phases of cryptocurrency prices correspond to the four seasons of the year. During the period preceding each halving, the price of bitcoin generally recovers from its lowest price point.

Morgan Stanley put out a nice checklist to help investors identify if it is indeed a “growing season”. A 50% price increase from bitcoin’s low is one of those signals that a trough level has been reached, but as mentioned above, there are a lot more dynamics in play here external to seasonality. Over the last year, bitcoin and Ethereum pricing are up considerably, up 98% and 59%, but regulatory uncertainty remains.

When Will We Get a Spot Bitcoin ETF?

We are currently in an eight-day window between November 9-17, where potentially all 12 spot Bitcoin ETF filings could be approved by the SEC, according to Bloomberg ETF analysts James Seyffart and Eric Balchunas, including Grayscale’s conversion of its GBTC trust product. Grayscale has been in talks with the SEC over the conversion since winning its court battle with the SEC on August 29. In a new research note, James Seyffert predicts a 90% chance by January 10 of a spot Bitcoin ETF approval.

ETF Plays for Now

Digital Assets

Besides buying bitcoin yourself on an exchange like Coinbase, the easiest way to get direct bitcoin exposure is through futures-based ETF products like the Proshares Bitcoin Strategy ETF (BITO), which has attracted assets of more than $1.2 billion since its launch in October 2021. Since the launch of BITO, other bitcoin futures products have come to market, such as the VanEck Bitcoin Strategy ETF (XBTF) and even a combo ETF strategy, the Valkyrie Bitcoin and Ether Strategy ETF (BTF), which holds both bitcoin and Ether futures.

In addition to bitcoin and Ethereum “pure plays”, there are multi-asset combinations such as the Amplify Transformational Data Sharing ETF (BLOK) and the Global X Blockchain & Bitcoin Strategy ETF (BITS), which own both blockchain stocks and either non-US listed crypto ETFs and/or futures.

Blockchain ETFs

Crypto is an application on the blockchain, just like e-mail is an application on the Internet. There are many blockchain-focused ETFs as well. In addition to the actively managed BLOK, there is, in order of assets under management, the First Trust Indxx Innovative Transaction & Process ETF (LEGR), the Bitwise Crypto Industry Innovators (BITQ), the Global X Blockchain ETF (BKCH), and the Siren NASDAQ Nex Gen Economy ETF (BLCN), to name a few.

A reminder to new investors in the space: “Blockchain” was not allowed to be used in fund names due to SEC rules around naming conventions when many of these first ETF products launched during crypto’s last “spring phase” in early 2018.

Crypto Mining ETFs

Many of the blockchain-themed ETFs also own crypto mining stocks, but a purer play on that theme is the Invesco Alerian Galaxy Crypto Economy ETF (SATO) based on VettaFi’s CRYPTO Index or the VanEck Digital Transformation ETF (DAPP). Among its top 10 holdings are crypto miners like Bitfarms (BITF), Marathon Digital Holdings (MARA), Riot Platforms (RIOT), Cipher Mining (CIFR), and Hive Digital Technology (HIVE).

Another top holding in both of these ETFs is MicroStrategy (MSTR), which had a big bet on bitcoin on its balance sheet that appears to have paid off with a $1.2 billion profit. But the company is not taking profits. Under controversial CEO Michael Saylor, the company is buying more.

Regardless of who is right in the short term, the crypto bulls or bears, and/or what crypto season we are in, cryptocurrency as a financial asset appears here to stay for the long-term. It is another disruptive theme for investors to consider, along with technologies like blockchain that support its growing applications and use cases.

For more news, information, and strategy, visit the Disruptive Technology Channel.

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