Three reasons why SEC approval of Bitcoin spot ETF is a potential game changer

A Bitcoin spot ETF could more than double the nearly $28.8 billion assets under management held in Bitcoin funds in the US.
Demand for a spot Bitcoin ETF is likely to come from investment advisors, banks and brokerages that own BTC futures ETFs.
Analysts at asset manager NYDIG predict BTC price could approach $50,000 for the first $25 billion inflow to spot ETFs.

The US Securities & Exchange Commission (SEC) will start reviewing Bitcoin spot Exchange Traded Fund (ETF) applications this week. As the clock is ticking for the approval or rejection of six applications, among them those from BlackRock and Fidelity’s Bitcoin Trusts, analysts at asset management firm NYDIG say that the approval of a Bitcoin ETF would sharply increase capital inflows and potentially drive Bitcoin’s price closer to $50,000.

There is no guarantee that the US financial regulator will approve a Bitcoin ETF, but the fact that industry giants have filed applications fueled speculation that an approval is likely.

Bitcoin spot ETF approval could usher massive capital inflows

According to analysts at NYDIG, a New York-based investment management firm, a spot Bitcoin ETF approval could open gates to $30 billion in capital inflow to BTC. A significant amount of investment has already been made in existing structures including trusts, such as the Grayscale Bitcoin Trust (GBTC), futures-based ETFs in the US, spot-based ETFs outside of the US, and private funds, the analysts said.

These investment products have around $28.8 billion in Assets Under Management (AUM), a figure that is likely to increase sharply if concerns surrounding exchange-traded products are alleviated by the network effect of BlackRock and traditional finance giants.

More specifically, NYDIG analysts estimate that the BTC spot ETF is likely to see an incremental demand of $30 billion, drawing parallels between Bitcoin and gold. Since the cryptocurrency has been labeled as digital gold in the past, the comparison sheds light on where the demand for BTC spot ETFs is expected to come from.

Banks, brokerages likely to drive demand

Comparing investor types across the board, NYDIG researchers identified that demand for a spot bitcoin ETF might come from investment advisors that are currently investing in BTC futures ETF.

Banks and brokerage firms are likely to see this as a bigger opportunity, and institutions could overcome their hurdle of holding spot BTC through the launch of the product. This move could bring Bitcoin to more client portfolios.

The incremental demand from clients could directly influence the market capitalization and price of Bitcoin with a multiplier of 10x, NYDIG said.

Every $1 of AUM could drive up Bitcoin’s market capitalization by $10

Without discounting different scenarios, researchers came up with a 10x multiplier to simplify the expected impact on Bitcoin price. Every $1 added to AUM has the potential to add $10 to the asset’s market capitalization.

To put this into perspective, consider Bitcoin price sensitivity as shown below:

Bitcoin price sensitivity to ETF fund flows

According to the chart, and taking into account Bitcoin’s current price of around $30,500, the addition of a $25 billion capital inflow to AUM could push BTC price to more than $43,000, closer to $50,000. There is a game changing potential for Bitcoin price to rally in response to adoption of spot ETF products by institutional clients.

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