Coinbase Experts Warn of Market Shifts with Bitcoin ETF Launch

The anticipated launch of spot Bitcoin exchange-traded funds (ETFs) in the United States is drawing close, and it's stirring significant discussions in the cryptocurrency sector.

by Faruk Imamovic
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Coinbase Experts Warn of Market Shifts with Bitcoin ETF Launch
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The anticipated launch of spot Bitcoin exchange-traded funds (ETFs) in the United States is drawing close, and it's stirring significant discussions in the cryptocurrency sector. According to experts from Coinbase, the introduction of these ETFs could lead to notable changes in the market, including a possible shortage of regulated Bitcoin and impacts on institutional trading strategies.

The Scarcity Concern and Institutional Strategy Shift

Coinbase's head of institutional research, David Duong, and senior sales trader, Greg Sutton, have pointed out potential risks associated with the launch of spot Bitcoin ETFs.

One major concern is the sourcing of Bitcoin for these ETFs. Issuers will need to acquire significant amounts of Bitcoin to hold in their ETFs, and the demand could outstrip the regulated supply.

Duong raised a pertinent question on a Dec.

19 podcast: "What if demand is so great that these guys are unable to acquire the Bitcoin they need?"

This issue of potential scarcity is not just a logistical concern but also reflects the growing mainstream acceptance of Bitcoin as an investment asset.

Bitwise, a crypto venture firm, even predicted that a spot Bitcoin ETF could be the most successful ETF product launch of all time. Another risk highlighted by Sutton involves the "basis trade," a popular strategy among institutional investors.

This strategy exploits the difference between the spot price of Bitcoin and the price of Bitcoin futures contracts. Recently, the potential profit from this trade has surged, reaching as high as 20% in the past fortnight. However, the launch of a spot ETF product, which offers direct exposure to Bitcoin, could significantly narrow this basis, thus reducing the profitability of the strategy.

High Expectations for Approval

The cryptocurrency community is closely watching the Securities and Exchange Commission (SEC), as there are currently 13 applications for a spot Bitcoin ETF pending. Bloomberg ETF analysts Eric Balchunas and James Seyffart have assessed the likelihood of approval at an optimistic 90%.

The approval of one or all of these products, potentially as early as Jan. 10, could mark a significant milestone in the integration of cryptocurrency into mainstream financial products.

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