A recent report from data analytics firm CryptoQuant suggests that the approval of bitcoin spot exchange-traded funds (ETFs) could drive significant growth in the cryptocurrency market. According to their models, if these ETFs are given the green light, an estimated $155 billion could flow into the bitcoin market capitalization, ultimately transforming Bitcoin into a $900 billion asset. Furthermore, this development could contribute to an overall increase of $1 trillion in the entire cryptocurrency market.
CryptoQuant’s report highlights that the initial phase of institutional adoption from 2020 to 2021 primarily involved institutions adding bitcoin to their balance sheets. However, the next phase is anticipated to involve financial institutions offering bitcoin access to their clients through spot ETFs. Notably, several major financial institutions in the United States have sought approval to launch spot Bitcoin ETFs, with the possibility of approvals by no later than March 2024.
The potential influx of funds resulting from the approval of spot ETFs is projected to surpass the capital inflow into the Grayscale Bitcoin Trust (GBTC) during the previous bull market cycle. Currently, GBTC is the largest cryptocurrency fund worldwide, managing $16.7 billion in assets. It’s essential to note that Grayscale’s parent company is Digital Currency Group.
According to CryptoQuant’s analysis, if the issuers of bitcoin ETFs allocate just 1% of their Assets Under Management (AUM) to these funds, approximately $155 billion could enter the bitcoin market. This injection of capital would represent nearly a third of bitcoin’s current market capitalization. If this scenario unfolds, it has the potential to drive bitcoin’s price into the range of $50,000 to $73,000.
Historical data indicates that during previous bull markets, bitcoin’s market capitalization has expanded by 3-5 times more than its realized capitalization. This implies that for every $1 of fresh investment entering the bitcoin market, the market capitalization could increase by $3-$5, as emphasized by CryptoQuant.
The significance of potential ETF approvals was underscored when bitcoin briefly surged to $30,000 following a false report published by Cointelegraph regarding the approval of a spot bitcoin ETF. Despite the news turning out to be erroneous, the bullish sentiment and anticipation of approval have kept bearish sentiment at bay.
Markus Thielen, Head of Research and Strategy at Matrixport, stated, “Nobody will dare to short BTC now for the foreseeable future. Even if this Cointelegraph news was false, BTC can still grind higher in anticipation of the approval.”
This bullish sentiment is also evident in the continuous reduction of the GBTC discount, which is currently at its lowest point in nearly two years.
The cryptocurrency market initially exceeded the $1 trillion mark in January 2021. As of the time of the report, the total market capitalization stood at $1.13 trillion, with bitcoin constituting more than 50% of this total.
