Three Possible Scenarios for Bitcoin ETFs in 2024

A Bitcoin ETF could finally start trading in the U.S.—possibly as soon as next week—after 10 years of the U.S. Securities and Exchange Commission saying no to the investment vehicle. 

The long list of high-profile applicants have been fine tuning their S-1 filings and analysts at Bloomberg have said a launch now has a 90% chance of happening by January 10. 

If it happens, it means traditional retail investors will at last have a way to gain exposure to Bitcoin without having to buy and store the digital asset directly. In other words, they could invest in Bitcoin without fussing with cryptocurrency exchanges, digital wallets, and seed phrases.

Opinions on what a Bitcoin ETF will do for the crypto market range from a monumental influx of Wall Street money to nothing extraordinary at all, depending on whom you ask. 

So what’s to be expected? Here are three possible scenarios.

What if a Bitcoin ETF doesn’t get approved? 

The SEC could still technically deny the product—but that’s unlikely, experts told Decrypt. The SEC has spent the best part of a decade refusing the vehicle, saying that because Bitcoin is largely global and decentralized, it is more vulnerable to market manipulation. 

Things have changed now, and since last year, more prestigious financial institutions—like BlackRock and Fidelity—have applied to the SEC. 

And applications have since come a long-way, with would-be issuers altering their S-1 forms to suit the SEC’s desires. 

Dave Nadig of data analytics company VettaFi and the co-author of “A Comprehensive Guide To Exchange-Traded Funds” said that the regulator was asking for too much detail from potential issuers to deny the product again. 

“It would be very, very unlikely to me that the SEC would bother going to the trouble of having staff reviewing line by line, all the nitty gritty detail of those S-1s, if in fact they were looking to do a rug pull in a week,” he told Decrypt.

Still, if for whatever reason the ETF isn’t approved, the market won’t likely take the news lightly. We got a preview of that today following a bearish report from digital asset manager Matrixport which made the bold prediction that the SEC would indeed deny all pending applications. The report rattled markets causing Bitcoin to crash by more than 7% within minutes.

One Bitcoin ETF issuer might steal the show 

The SEC currently has a list of 14 high-profile firms trying to get approval. These include the likes of BlackRock, WisdomTree, and VanEck. Where is all the money going to go if the SEC gives the green light to all of them? 

Analysts such as Bloomberg Intelligence’s Eric Balchunas have said that a lot of ETFs could launch in one day and if that happens, interest could be dispersed as well. 

There is also the possibility of Grayscale getting the green light at the same time, too. Crypto asset manager Grayscale is hoping to turn its popular Bitcoin Trust (GBTC) into a spot ETF. If that happens, it could steal the show.

“Where the volume shows up is a little bit of a secret sauce, mystical union quest,” said Nadig, adding that “if GBTC is included in that initial launch, it could get all the volume because there are a lot of people who are already in it that may want to unload it.”

Currently, only accredited investors can directly put cash into GBTC (GBTC shares can be bought on the secondary market via formal US brokerage or retirement accounts, though.) But if the fund turns into an ETF, all investors with access to U.S. markets will be able to buy and sell shares of the ETF in real-time. 

It doesn’t end up doing very well 

As Decrypt previously reported, experts have generally agreed that over the long-term, a spot Bitcoin ETF will probably do well. 

What isn’t clear is that if approval immediately leads to an influx of capital: with so many ETFs launching at the same time, investment could be diffused over several, leading to a quiet first day of flows, experts said. 

ETF Research Analyst at Bloomberg Intelligence James Seyffart told Decrypt: “It could be a flop short term and disappoint people with initial day one or two flows.” 

And don’t bank on the price immediately exploding, either. Since ETF hype started last year, the price of the biggest cryptocurrency by market cap has soared—making it one of 2023’s best performing assets. This means that gains could already be priced in. 

But capital is likely to flow into the products—if approved—throughout 2024. “There is demand for these products,” Seyffart added. “There’s a reason so many issuers are trying to get a piece of the action.”