January 2024 marked a watershed moment for both BTC and the broader crypto market with the long-awaited approval of spot BTC ETFs in the US ^[1]. These ETFs act as a bridge, attracting traditional investors to BTC through established ETF providers. This influx of capital has the potential to bolster BTC price by increasing demand.

While spot BTC ETFs currently acquire their holdings primarily through the OTC market, their influence extends beyond that. By absorbing buying pressure, they've helped reduce selling on CEXs, contributing to a positive price trend for BTC. However, this dynamic might shift after the upcoming BTC halving. If the OTC market lacks sufficient liquidity to meet ETF demand, the buying pressure from these funds could directly impact the BTC price on exchanges. In essence, spot BTC ETFs act as an amplifier. During bull markets, they magnify the upward trend by increasing overall buying pressure. Conversely, during bear markets, they could exacerbate the downward trend as traditional investors cash out on their holdings.

The BTC market currently seems bullish due to the upcoming halving, potentially extending this uptrend for 12-18 months after the event. While I'm skeptical of spot BTC ETFs, questioning their role in fostering self-custody ^[2],  I acknowledge their potential positive influence on BTC price.  These ETFs might even be the reason BTC has already reached a new ATH before the halving ^[3].

The discussion above only covers the initial impact of spot BTC ETFs on the BTC price. In the long term, I believe its positive impact can be categorized into 3 stages:

• Stage 1: Awareness and early adoption =  Traditional investors seeking portfolio diversification are reached through advertising campaigns promoting spot BTC ETFs. These investors conduct their own research to learn more about Spot BTC ETFs. Investors in existing spot BTC ETFs from other countries may switch to US offerings due to their perceived higher reputation and lower fees.
  This initial stage likely reflects the current market activity, as evidenced by a surge of new capital entering the market ^[4]. However, it's important to note that this influx might be temporary: the ease of entry and exit for these investors may lead to quick fluctuations based on overall crypto market sentiment.
• Stage 2: Widespread adoption through investment consulting firms = Investment consulting firms will play a crucial role in driving mainstream adoption of spot BTC ETFs ^[5,6]. These firms are expected to recommend these ETFs to their clients, suggesting an allocation within their portfolios to potentially achieve higher returns. To facilitate informed decisions, consultants will provide detailed information about each available spot BTC ETF. This stage is likely to begin shortly after consulting firms complete internal training for their employees on the new investment option. With consultants actively promoting spot BTC ETFs, we can expect a significant and sustained increase in inflows into these funds.
• Stage 3: Discreet entry point for institutional investors = Traditionally risk-averse institutions, like pension funds, may gain exposure to BTC indirectly through synthetic ETFs offered by major investment funds ^[7,8]. These synthetic ETFs might hold a small allocation to underlying spot BTC ETFs, essentially giving investors exposure to BTC without them directly buying it. While still in early stages, spot BTC ETFs are poised to unlock a steady stream of investment, particularly from pension funds, into the crypto over the long term.

ETF providers are incentivized by fees to have a large amount of capital in their spot BTC ETFs. To attract investors, they might emphasize positive outlooks for BTC price growth. This focus on price appreciation could lead to marketing that emphasizes historical price charts, potentially influencing investor sentiment and price movement in the short to medium term (this year and next year).

I would like to know your opinion on the multi-stage implications of spot BTC ETFs:

• In your opinion, at what stage are we in this multi-stage process?
• Do you anticipate a further positive influence of spot BTC ETFs on BTC price itself?
• If you were a participant in a pension fund, would you be comfortable with a portion of your assets being automatically allocated to spot BTC ETFs?

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References:
[1] Spot Bitcoin ETFs Explained: Everything You Need to Know
[2] BTC spot ETF: Wall Street's Trojan horse
[3] BTC created new ATH before Halving: are you surprised?
[4] Bitcoin ETF Tracker
[5] Financial advisers seek guidance on recommending bitcoin ETFs
[6] Report: Morgan Stanley 'Racing' to Offer Bitcoin ETFs to All Clients
[7] Fidelity Unveils Crypto Exposure To Multi-Asset Etfs
[8] Bitcoin ETFs poised for US pension plan inflows, Standard Chartered analyst says

This is also what I am waiting for: investment consulting companies are all very cautious and they usually wait for the success of ETFs for 90 days to decide whether the ETF is really attractive and valuable for their customers. When they officially participate in and introduce spot BTC ETFs, we will see an increase in the number of investors and the flow of money into spot BTC ETFs.

Coincidentally, this will happen along with the halving, making the halving a major event that has a strong impact on the growth of BTC price. That is Stage 2 that I mentioned, it is coming and we need to prepare to witness that important moment of BTC!

BTC from Grayscale is only a part of the BTC supply on OTC. They have sold about 15B USD worth of BTC, while the remaining ETFs have bought about 27B USD, meaning we have net inflows of 12B USD ^[1]. This 12B USD worth of BTC comes from many sources, including miners and people who choose to sell on OTC at a higher price instead of selling on Spot and causing the BTC price to decrease. I believe that when Halving happens, the number of BTC from miners will decrease and they will not have much BTC to sell on OTC either. Similarly, people with BTC will also want to hold after Halving and this will cause the supply on OTC to be exhausted. And the truth is that there have been days when the OTC supply has been exhausted ^[2].

And even though this buying pressure has not yet been transferred to CEXs, it still has an indirect impact on BTC price through the decrease in selling pressure on CEXs. Another thing is that we only have a maximum of 21M BTC, about 30% of which may have been permanently lost ^[3], and only about 2M BTC are in good liquidity on CEXs ^[4]. I think we will see something interesting right after Halving, when the supply on OTC dries up while the investment demand from traditional investors continues to increase.

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References:
[1] Spot Bitcoin ETFs return to net daily outflows; Grayscale’s GBTC total outflows eclipse $15 billion
[2] Shocking: Bitcoin OTC Market Dries Up to 40 BTC
[3] Approximately 7.8M Bitcoins Have Been Lost. Can they be Recovered?
[4] Bitcoin: Exchange Reserve

I thought the same and Bitcoin Spot ETFs are very good for Bitcoin and its adoption growth in future. By getting Spot ETFs in the USA. Bitcoin opens another important gate to its main stream that will come in future but let's be realistic and don't hope it will happen very soon.

In investment, being either extremely optimistic or pessimistic is bad, we must be realistic and have as neutral mindset as possible.

Don't stress ourselves and let's Bitcoin grows, market makers do their works, and we can simply enjoy sweet harvesting time from a long progress initiated by market makers. Stress ourselves don't help anything because we are just too small in this market.

The best thing about these etfs is that unlike an exchange where you risk your funds getting stolen and having to use unique email, unique password, 2fa, whitelisting, etc to protect your funds. You won’t have to worry about this with etfs.

Imagine some older person who is not very technical. Can you imagine them going on Binance and having to KYC and then self custody. Nobody has time to learn all these steps. But with the etfs your funds are well protected.

I think we are now in the stage where consulting firms are now confidently recommending bitcoin to their clients. We are seeing more and more corporations publicly investing in bitcoin.


Its influence on the unexpected albeit welcomed increase in price is definitely noted and in the upcoming halving event I believe btc etfs can launch a larger impact on the market movement.

Unfortunately, I don't have any evidence, I wish I could collect enough data to compare the selling pressure on CEXs before and after spot BTC ETFs, but I can present the logic of it:

BTC price on Binance is 1BTC = 70K USD. If I have 100 BTC, I can sell 100 BTC on Binance but BTC price will decrease because the selling pressure is too high, then I can only sell 100 BTC at average price of 1BTC = 65K USD.

On the other hand, the buying pressure on OTC is very high. I will sell my BTC on OTC to get price of 1 BTC = 70.5K USD for all 100 BTC. I have more profit, while the selling pressure of 100 BTC on Binance is no longer there. Assuming the buying pressure remains constant or increases, BTC price on Binance will also increase.

I understand this, but liquidity on CEXs is not always good, and large sell pressure in the short or long term can cause prices to fall and negatively impact profits, so OTC is a great option for many sellers. Anyway, when sellers have sold 100 BTC on OTC, they no longer have 100 BTC to continue selling on CEXs, which means that the sell pressure on CEXs decreases, helping to support the BTC price better.

I think this is one way we can explain the positive impact of spot BTC ETFs on BTC price over the past 3 months, even though ETF providers are still only buying BTC on OTC rather than CEXs.