What a Bitcoin ETF Means for Crypto Exchanges in 2024

In case you haven’t heard, we’re on the verge of the first Bitcoin ETF in history being approved. Perhaps it will already have been confirmed by the time you read these words. Or perhaps it will have been delayed by a few more weeks. But whatever the case, we’re close. Really close.

Barring a major curveball from US regulators, at least one Bitcoin ETF will be approved in early 2024. For institutional investors, including managers of pension funds and family offices, this will make it possible to gain exposure to BTC without needing to custody the underlying asset. However, the benefits of Bitcoin ETF approval extend far further, impacting existing cryptocurrency holders and the exchanges they trade on in many unexpected ways.

What a Bitcoin ETF Means for Bitcoin

An Exchange-Traded Fund (ETF) is a type of investment fund designed to track the performance of a specific index, commodity, or basket of assets. ETFs are traded on stock exchanges, just like individual stocks, and their shares can be bought and sold throughout the trading day. If all goes to plan, soon Bitcoin will be tradable just like any other commodity, allowing well-funded investors to allocate capital to BTC for the first time.

Since consumers — i.e. ordinary investors — can already buy Bitcoin on hundreds of exchanges, why is the crypto community so excited about the prospect of the first ETF being approved? The obvious reason is an anticipated rise in the price of BTC as institutions seek to add it to their balance sheets ahead of the ETF being greenlit. A rising tide raises all boats, and if a trickle of demand for ETF allocation turns into a torrent, it will pump everyone’s bags, to use the vernacular.

But to focus on price is to lose sight of the many other ways in which a Bitcoin ETF will alter the crypto landscape. Besides, while I expect an ETF to be bullish for our industry in the long run, there’s no guarantee that it will send digital asset prices soaring in the short run: the news might have already been “priced in.”

What a Bitcoin ETF Means for Exchanges

So if you’re an existing cryptocurrency holder, what will change? The effect of an ETF will be measurable through an expected increase in trading volumes. Expect your favorite crypto exchange to become busier than ever as new users sign up and existing users increase their activity. If your primary exchange is prepared for this uptick you shouldn’t notice the difference, however, as its infrastructure, from trading engine to customer support, should scale to meet the demand.

As for why an ETF will drive more consumers to buy crypto, it ultimately comes down to legitimacy. When accredited investors and traditionally conservative money managers buy Bitcoin, it normalizes it. It’s hard to throw shade on crypto when the whole world is trading it.

But an ETF will do more than open the floodgates to a wave of new users: it will also pave the way for further cryptocurrency ETFs. 

In the aftermath of the first Bitcoin spot ETF launching (likely the Blackrock one), other Bitcoin spot ETF applications will likely be approved. And then we will see the first Ethereum spot ETF getting the thumbs up from regulators. It’s easy to see how this trend can generate a snowball effect with positive effects on the entire crypto market.

Compliance Will Be a Net Good

One trend that will be unavoidable in 2024 is compliance: the number of exchanges not participating in user verification will dwindle to a handful of offshore platforms that believe they can dodge regulators. While the average crypto investor doesn’t enthuse about compliance (it’s hard to get excited about disclosing your ID, no matter how seamless the process), they recognize that it is a net good for the industry.

Exchanges that know who their customers are can better thwart hacks and other cyber attacks, mitigating the fallout from onchain exploits and providing some redress for users affected. Compliance isn’t just about mitigating outright crime, though: it also helps with monitoring attempts at market manipulation. And if you’ve been following the route to the first Bitcoin ETF, you’ll know that potential market manipulation has been one of the SEC’s chief concerns.

If you’re trading on a CEX in 2024, it will almost certainly be one that incorporates a customer compliance program. The remaining exchanges that circumvent this will be less liquid and less safe to trade on, leaving them the preserve of fringe characters who are unable or unwilling to complete verification elsewhere.

What Else to Expect

One of the more interesting exercises to play in the context of presumptive ETF approval is guessing the second-order effects. We know an ETF will be good for Bitcoin, but how else might this narrative play out – and what opportunities does this present for shrewd traders to capitalize? We’ve already touched on newfound confidence in BTC permeating the entire market and likely expediting an Ethereum ETF further down the road.

But within Bitcoin itself, we now have an entire ecosystem operating on its blockchain that has little to do with BTC. Yes, Ordinals and the explosion in sub-tokens they’ve spawned including BRC20s and inscriptions. While it doesn’t automatically follow that an ETF will drive demand for Ordinals, given that BRC20-based assets are denominated in BTC, there’s a case for being bullish on their valuation.

This year, exchanges that have proactively supported Ordinals and BRC20s will likely benefit from the faith they have placed in Bitcoin assets. If Bitcoin has a good year, so will these exchanges, whose users will benefit from access to some of the most promising tokenized projects building on Bitcoin. Moreover, with tokenized BTC now available throughout the multi-chain landscape, the effects of an ETF will certainly not be limited to one chain.

In 2024, expect volatility, volume, and greater value than ever to be moved on-chain as Bitcoin stands on the precipice of a historic moment that will alter the entire industry.