I asked ChatGPT to write an article about what would happen when a spot Bitcoin ETF launches in a few weeks. I disagree with the premise. Here it is, with my comments in bold:
Title: The Impact of Spot ETFs on Bitcoin: A Game-Changer for Crypto Investors
Introduction:
Bitcoin, the pioneer of cryptocurrencies, has witnessed significant growth and acceptance in recent years. As the cryptocurrency market matures, the introduction of Bitcoin spot exchange-traded funds (ETFs) is poised to be a transformative development. This article explores the potential implications of the launch of Bitcoin spot ETFs and how they might shape the future of the digital asset.
Understanding Spot ETFs:
Exchange-traded funds (ETFs) are investment vehicles that allow investors to buy and sell shares representing ownership in a diversified portfolio of assets, such as stocks, bonds, or commodities. A spot ETF specifically tracks the price of the underlying asset, allowing investors to gain exposure to the asset's performance without physically owning it.
Bitcoin spot ETFs are designed to mirror the value of Bitcoin directly. Unlike futures-based ETFs, which derive their value from contracts that speculate on the future price of Bitcoin, spot ETFs hold the actual cryptocurrency. This distinction is crucial as it may influence how institutional and retail investors approach Bitcoin as an investment.
This was probably included because futures-based Bitcoin ETFs were allowed by the SEC in 2021. At the time, I didn't realize that these trading vehicles were really just bets that settled on the price of bitcoin at a time in the future. These futures-based ETFs (such as BITO) do not take any Bitcoin supply out of the market. THIS IS KEY because the whole premise of bitcoin is that it has limited supply/digital scarcity. When the SEC finally approves these spot Bitcoin ETFs, each time an investor purchases shares of the ETF, the ETF will take supply out of the trading market.
Increased Accessibility and Mainstream Adoption:
The launch of spot ETFs is expected to make Bitcoin more accessible to a broader range of investors. Traditional investors, who may have been hesitant to navigate the complexities of cryptocurrency exchanges, can now gain exposure to Bitcoin through familiar investment channels. This increased accessibility could lead to a surge in demand for Bitcoin, potentially driving up its price.
I generally agree with this, except I would remove the word 'potentially.' You may recall that Bitcoin has a supply cap of 21million coins, and 19.58 million of them have already been made. The next 1.42 million will be released over the next 115 years. Of the 19.58M already made, ~70% hasn't moved wallets in the last 10 years. That means that people (like me) didn't sell their bitcoin at the peak in Nov 2021 ($69K) or at the trough in Nov 2022 ($16K) because they believe in it is worth more. A LOT more. Now, don't get me wrong, there will be some speculators and tourists selling their bitcoin when it gets back to and above the prior all-time-high, but most of the coins are not coming back onto the market. And so, when Blackrock, Fidelity, and friends start buying up bitcoin to place it into their ETFs, supply will dwindle, and price will rise.
Institutional Involvement:
Institutional investors, often constrained by regulatory and compliance requirements, have been cautious about entering the cryptocurrency space. The introduction of spot ETFs addresses some of these concerns by providing a regulated and familiar investment vehicle. As institutions start allocating funds to Bitcoin through spot ETFs, it could signify a shift in sentiment and contribute to the wider adoption of cryptocurrencies in traditional finance.
Agree. Allowing a 'regular' ETF into the US markets gives legitimacy to asset managers that already understand Bitcoin, and would invest, but are currently not permitted to do this under their Terms and Conditions.
Price Volatility and Market Dynamics:
While increased demand may drive up the price of Bitcoin, the market is likely to experience heightened volatility in the short term. The influx of new investors, coupled with the speculative nature of cryptocurrency markets, could lead to rapid price fluctuations. Investors should be prepared for both upward and downward swings in the value of Bitcoin as the market adjusts to the changing dynamics.
Bitcoin price has essentially tripled from the lows of Nov 2022 when the fraud of FTX came to light. In my opinion, the price would have hit $100,000 in Nov 2021 if there hadn't been so much fraud and paper bitcoin that got exposed during '21-22. Unfortunately many people got burned trusting third parties to manage their bitcoin for them (myself included). The painful lesson here is to custody your own bitcoin, not trust someone else to do it for you.
Regulatory Scrutiny:
The launch of Bitcoin spot ETFs brings increased regulatory scrutiny to the cryptocurrency market. Regulatory bodies will closely monitor the activities of these funds to ensure compliance with existing financial regulations. Clearer regulatory guidelines could contribute to a more stable and secure environment for cryptocurrency investments.
Conclusion:
The introduction of Bitcoin spot ETFs represents a significant milestone in the evolution of the cryptocurrency market. The increased accessibility, institutional involvement, and regulatory oversight are likely to shape a new era for Bitcoin and other cryptocurrencies. While the impact on the market is expected to be positive in the long term, investors should remain vigilant and informed, considering the inherent volatility of the cryptocurrency landscape. The launch of spot ETFs heralds a new chapter in the integration of cryptocurrencies into mainstream finance, providing investors with alternative opportunities to diversify their portfolios.
My conclusion is this: Bitcoin is the best money ever created. The SEC lost its lawsuit against Grayscale and has no grounds not to approve a Spot Bitcoin ETF, and multiple entities are itching to bring this product to market. A bitcoin spot ETF is a question of when, not if, and many industry watchers expect it to happen on or before Jan 10, 2024. Keep in mind that these financial institutions, Grayscale, BlackRock, Fidelity, Templeton, ARK, Bitwise, etc (there are 13 with applications at the SEC at this moment), make money on the fees. Their whole goal is to get you, the retail investor and/or the institutional asset manager, to give them your assets, so they can charge you fees. Charging you fees on the assets you custody with them is their ENTIRE business model. Ergo, they are going to market these entities to you. Bitcoin doesn't have a marketing department, but Wall Street is about to unleash their marketers to convince you to let them take care of your bitcoin for you. In January 2023, I told you Bitcoin is Still a Buy. In April I asked 'What is your Bitcoin Number?' If you are waiting for Bitcoin to hit a price target before you buy, tell me what it is, and why. If you haven't bought any Bitcoin yet, it's not too late. And, by the way, the marketing has already started: