Global investment bank JPMorgan has cautioned that the approval of spot bitcoin exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission (SEC) could “put severe downward pressure on bitcoin prices.” The bank’s analysts estimate that billions of dollars could exit the crypto market after Grayscale Investments converts its bitcoin trust (GBTC) into a spot bitcoin ETF.
Market Impact of Spot Bitcoin ETFs
JPMorgan analyst Nikolaos Panigirtzoglou shared his predictions of the potential impact on the price of bitcoin from the U.S. Securities and Exchange Commission (SEC) approving spot bitcoin exchange-traded funds (ETFs) in a Linkedin post on Friday.
While emphasizing his belief in the imminent approval of spot bitcoin ETFs by the SEC, he cautioned that client discussions are centered on the potential capital outflow from the Grayscale Bitcoin Trust (GBTC) as it transitions into a bitcoin ETF.
“The argument being that a significant amount of GBTC shares has been bought in the secondary market this year at deep discounts to NAV in anticipation of its conversion to ETF and these speculative investors would take profit once GBTC gets converted to an ETF and the discount to NAV gets arbitraged away,” Panigirtzoglou explained. “We estimate that around $2.7bn could come out of GBTC.” The JPMorgan predicted:
In terms of market impact, if this $2.7bn exits completely the bitcoin space then such an outflow would of course put severe downward pressure on bitcoin prices.
“If instead most of this $2.7bn shifts into other bitcoin instruments such as the newly created spot bitcoin ETFs post SEC approval, which is our best guess, then any negative market impact would be more modest. Nevertheless, the balance of risks for bitcoin prices is skewed to the downside in our opinion as some of this $2.7bn is likely to completely exit the bitcoin space,” the analyst continued.
“Significantly more money than the above $2.7bn could exit GBTC if its fee (currently at 200bp) is not lowered sharply post ETF conversion towards our estimated range of the equilibrium fee of around 50-80bp,” he cautioned.
A Shift Towards Regulated Crypto Entities
Panigirtzoglou also shared his analysis of the impact on the crypto industry of the Binance settlement with the U.S. Department of Justice (DOJ), the Treasury, and other federal agencies.
“The Binance settlement is reinforcing an ongoing shift towards regulated crypto entities and instruments which has been the objective of U.S. authorities post FTX collapse,” he said, elaborating:
Such a shift towards regulated crypto entities and instruments should be positive for the crypto ecosystem as more regulation will help attract the interest of traditional market participants and investors.
“Indeed, the participation of big traditional asset managers such as Blackrock and Fidelity in the forthcoming approval of physical or spot bitcoin ETFs by the SEC is consistent with this thesis,” the JPMorgan analyst added.
Do you agree with JPMorgan’s analysis on the price impact of spot bitcoin ETFs? Let us know in the comments section below.
