Don’t expect quick gains just from spot Bitcoin ETFs

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If one were to judge the immediate effects of the SEC’s approval 11 Spot Bitcoin ETFs in January, as an indicator of long-term price reaction, HODLers likely would have been disappointed with prices rising only 6% in just over a month. While the approvals brought a new wave of positive attention and robust institutional activity to the crypto market, the instant price rise that everyone predicted did not materialize.

Of course we are now witnessing Bitcoin climbs to record prices and the beginnings of a full-scale bull market unfolding before our eyes. As large asset managers like BlackRock and Fidelity bring crypto to their clients, the attention has been largely rewarded, even if it stalled momentarily at first.

But are ETFs the only reason for the significant rise in BTC prices? Yes, the convenience of ETFs has sparked new demand, but this is delaying the actual adoption of BTC as a sovereign store of value.

What the ETF approvals have brought to the industry is a revitalized sense of confidence in the crypto market after a trying crypto winter. We can attribute this revival to the more secure embrace of trusted financial institutions and the fact that they are paving the way for wider adoption.

The more professional image is very welcome and sets a clear roadmap for how large institutions and the general public can integrate crypto and other facets of blockchain technology without completely reorienting their financial reality.

While this risks creating a situation where the majority of BTC is held in spot ETFs, thereby consolidating a decentralized financial instrument within the confines of traditional, centralized control, the chances of this happening are currently quite slim.

It is also inaccurate to say that ETFs are the only ones contributing to the bullish momentum the crypto market is in today. Even though they probably play a major role thanks to all their contributions, both financial and in terms of image, it is simplistic to say that other factors do not play here.

Bitcoin ETFs play a dual role in drawing attention and funds to BTC itself and sharing the spotlight with other sectors of the industry.

The bear market has helped provide critical momentum for crypto projects to move away from the spotlight and focus on rebuilding and developing products that can withstand any type of regulatory, technological, or institutional scrutiny. Ignoring the progress made by the creative infrastructure projects that are now contributing to this revival would be detrimental.

In fact, many of these developments would not be possible without the immense progress being made in the blockchain ecosystem. Although many blockchain builders were aware of the need to build a framework for sustainable growth, it took some time for this to come to fruition.

Now, blockchain infrastructure is the cornerstone of the ecosystem’s growth. Since the start of 2024 alone, infrastructure projects have raised some $800 million in equity financing, and last year, more than $1.1 billion in the same quarter. Although this year’s numbers represent a decline, they show how proactive funding of these infrastructure projects is now paying off thanks to institutional interest.

Likewise, the rapid development of layer 2 projects for Bitcoin has also sown the seeds of scalability. And that’s before we even dive into the weight being driven by the Ethereum ecosystem and various other altcoins which are also seeing an uptick in activity and development. Think about what industry and development would be like without something as instrumental as, say, accumulations without knowledge (zk-rollups) or other scaling technologies.

In such a short time, it is difficult to say whether ETFs are responsible for the market downturn we are seeing. Did they draw attention to developments that would have happened anyway, even if the ETFs had been rejected? Or have they sparked a breakthrough beyond what the industry could have imagined on its own?

Bitcoin ETFs will bring value to the broader crypto ecosystem and drive adoption by giving the sector a more professional image, requiring retail investors to learn and understand the asset class over time. Even with the recent negative net inflows from BTC ETF activity, the outlook remains overwhelmingly positive for the effect these and other advances will bring to the space.

Yes, we can probably expect more price fluctuations, and it would be a mistake for HODLers to assume that they will make quick gains from ETFs alone. But what they achieve is to create a new foundational pillar for institutional attention and investment that will ultimately strengthen Bitcoin and all cryptocurrencies in the long term.

James Wo

James Woa seasoned entrepreneur and investor in the crypto space, created DFG in 2015. He currently manages a portfolio exceeding USD 1 billion in assets. With experience as an early stage investor, James has backed companies such as LedgerX, Ledger, Coinlist, Circle and ChainSafe. Additionally, he was an early investor and advocate of protocols such as Bitcoin, Ethereum, and Polkadot.

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