April 14, 2024
Spot Bitcoin ETFs, Exhausting Bitcoin's Entire Supply
Bitcoin News

Spot Bitcoin ETFs: Exhausting Bitcoin’s Entire Supply?

The potential approval of a spot Bitcoin exchange-traded fund (ETF) in the United States has led to speculation about the impact on Bitcoin’s supply and market dynamics. Observers predict that if the U.S. Securities and Exchange Commission (SEC) approves the ETF, it could trigger a surge in demand from institutional investors, potentially reducing the available Bitcoin supply.

Crypto entrepreneur Lark Davis estimated that a U.S.-based spot Bitcoin ETF could bring in up to $30 billion in fresh cash, with ETF issuers potentially buying around 50% of all Bitcoin on crypto exchanges to back their funds. However, industry executives and analysts believe that acquiring all available Bitcoin is highly impractical.

Valkyrie CEO Leah Wald emphasized that Bitcoin’s supply is capped at 21 million coins, with 1.4 million BTC yet to be mined. While someone could attempt to corner a significant amount of Bitcoin, establishing a monopoly is theoretically impossible due to the scarcity principle, which suggests that the price of a scarce asset will rise to meet demand.

“Bitcoin’s decentralized nature and the fact that many holders might refuse to sell at any price create a natural barrier against monopoly.”

Bitwise Chief Investment Officer Matt Hougan echoed this sentiment, stating that attempting to corner the entire Bitcoin market would result in rising prices, discouraging reluctant sellers. Jan3 CEO Samson Mow added that extremely high prices, fueled by products like a spot Bitcoin ETF, make it challenging to buy all Bitcoin in circulation.

“So as funds buy more BTC and increase their assets under management, it will become harder and harder to find willing sellers.”

Despite the competition among potential spot Bitcoin ETFs, experts believe that these funds are unlikely to pursue buying all available Bitcoin. David Gerard, author of “Attack of the 50 Foot Blockchain,” explained that ETFs view Bitcoin as a dollar derivative, caring more about the dollars they can generate.

While many anticipate spot Bitcoin ETFs to boost demand and influence the BTC price positively, some, like BitMEX co-founder Arthur Hayes, suggest that successful ETFs could potentially “completely destroy” Bitcoin. ARK Invest CEO Cathie Wood notes that some investors might “sell on the news” of ETF approval in the short term.

“Lots of holders have way more Bitcoin than there are actual dollars trying to buy — the markets are thin.”

Although some believe the potential approval of a spot Bitcoin ETF in the U.S. may have little impact due to existing ETFs in other regions, the sheer size of U.S. capital markets could make this comparison irrelevant. Bloomberg ETF analyst Eric Balchunas and other analysts predict an unprecedented injection of capital into the crypto market if the ETF is approved.

Photo by Alesia Kozik

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