The market capitalization (market cap) of Bitcoin (BTC) could rise to $950 billion if the US Securities and Exchange Commission (SEC) approves Bitcoin spot exchange-traded funds (ETFs). By investing just 1% of their $15.6 trillion in assets, ETF approvals can inject $155 billion into the market.
The move would hike Bitcoin’s realized market cap, calculated by adding the purchase prices of all Bitcoin in existence. History suggests that Bitcoin’s market capitalization rises faster than its realized market cap during periods of large inflows, meaning a $155 billion increase in the realized market cap may result in a market cap of between $465 billion and $955 billion.
Bitcoin ETF Inflows Could Dwarf Grayscale
This rise would correspond with the price of Bitcoin rising to between $50,000 and $73,000.
It would dwarf the realized market cap increase of $5.5 billion in Grayscale Investments’ Bitcoin Trust during the last bull market. During that period, Bitcoin increased from $10,000 to $64,000, later peaking at $66,000.
A Bitcoin spot ETF allows institutions to offer their customers regulated exposure to Bitcoin. So far, institutions needing a regulated vehicle in the US have invested in Bitcoin futures ETFs administered by ProShares, VanEck, and others.
Read more: What Are Bitcoin Futures?
At the time of its launch in 2013, Grayscale’s Bitcoin Trust offered institutions the only way to invest in a regulated Bitcoin vehicle. Its inflows also catalyzed the last bull market but have since been hampered by its nature as a closed-ended fund.
The SEC is expected to rule on ETF applications from ARK Invest, BlackRock, and others by March 2024. ARK’s deadline is in January, while the others expect a response between March 4 and March 18, 2024.
SEC ETF Approval Delays Are Good
Several voices in the investment industry say the SEC’s delay could see it approve several ETFs simultaneously. The shift in dialogue from a flat-out rejection to a lengthy approval process appears to be a positive sign, argues Bloomberg analyst Eric Balchunas.
“The fact that the SEC is actively engaging with spot bitcoin issuers on their current applications – which hasn’t ever happened before – we think a rejection is unlikely and holds a 75% chance of approval by the end of this year.”
Martin Bednall, a former executive at BlackRock and now the CEO of Jacobi Asset Management, believes the SEC wouldn’t want to be seen as a kingmaker by favoring some applications over others.
“I think the SEC will probably approve all the applications at the same time. I don’t think they’re going to want to give anybody a first-mover advantage.”
If most approvals occur before March, inflows could drive Bitcoin prices beyond the increases that have foreshadowed previous Bitcoin halvings. The increases will bring miners much-needed relief after the next halving, set to occur in spring 2024, which reduces the rate at which new Bitcoins are released into circulation.
Read more: What Is Bitcoin Halving?
A rise in Bitcoin price will offset miners’ losses from lower block rewards. It may also result in the survival of smaller mining companies, which traditionally drop off because of tighter profit margins.
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