Posted:
- There were expectations of increased flows on crypto exchanges following the approval.
- Bitcoin was well-positioned to make an impressive start to 2024.
The Crypto market was eagerly awaiting the possible adoption of spot Bitcoin [BTC] exchange-traded fund (ETF) applications, seen as an easier way for TradFi investors to gain exposure to cryptocurrencies.
However, with the final deadline for several applications set to be in January 2024, the question on everyone’s mind was: will ETFs manage to restore crypto liquidity to pre-FTX collapse levels?
Spot ETFs can turn it around for the market
A recent one report by crypto market data provider Kaiko called ETFs the “biggest catalyst” in reviving the two measures of liquidity: market depth and trading volumes.
As the chart below shows, the market was pushed to depth in the wake of the FTX implosion and remained suppressed for much of 2023. Even the ongoing market rally could not bring about a meaningful recovery.
Source: Kaiko
Spot ETFs, however, would require Bitcoins to be purchased in large quantities from authorized crypto exchanges or other holders. Occasionally, they may also sell coins to rebalance their holdings. This could boost trading activity on exchanges.
Furthermore, spot ETFs are expected to mimic the real price of underlying Bitcoins. To maintain this, arbitrageurs would continually buy and sell depending on whether ETF shares are trading at a premium or discount to the price of Bitcoin.
Therefore, there was a greater chance of increased liquidity in the market once spot ETFs were given the green light, Kaiko noted.
Favorable conditions for Bitcoin?
AMBCrypto had previously reported a $155 billion capital inflow into the Bitcoin market following the approval of the ETFs, resulting in Bitcoin’s spot price rising to somewhere between $50,000 and $73,000.
This was another strong example of spot ETFs having a beneficial impact on the market.
At the time of writing, BTC maintained its gains above $42,000, AMBCrypto noted using CoinMarketCaps facts.
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Shivam Thakral, CEO of the Indian cryptocurrency exchange, noted positive market sentiment following the US Federal Reserve’s dovish stance.
He said,
“We can expect an impressive start to 2024 for Bitcoin and other assets as events such as ETF approvals are scheduled for early 2024.”