With bitcoin (BTC) trading above $34,000 for the second day in a row, shares of firms involved in the cryptocurrency space soared. This was due to optimism that the U.S. Securities and Exchange Commission (SEC) would eventually approve an exchange-traded fund (ETF) that tracks the spot price of the largest cryptocurrency.At the time of writing, the stocks of cryptocurrency financial services company Galaxy Digital (GLXY), software company MicroStrategy (MSTR), which owned more than 158,000 bitcoin on its balance sheet, and cryptocurrency exchange Coinbase (COIN) had all increased by more than 14% on Tuesday.
More than 15% was contributed by bitcoin mining firms that are more susceptible to changes in the value of digital currencies, such as Marathon Digital (MARA), Riot Platforms (RIOT), CleanSpark (CLSK), and Mawson Infrastructure (MIGI).Additionally rising, the S&P 500 and Nasdaq equity indices ended a five-day losing run.The sharp increase in bitcoin’s price on Monday—which reached $35,000—was the catalyst for the market’s advance in stocks related to cryptocurrencies.The planned BlackRock exchange-traded fund (ETF) raised hopes when it appeared with the ticker $IBTC on the website of Depository Trust & Clearing Corp. (DTCC), a major U.S. market utility that handles all securities transactions.
Massive players in conventional finance (TradFi), such as BlackRock, filed for a spot ETF with the SEC earlier this year, sparking excitement over a possible spot bitcoin ETF.The asset managers, akin to those overseeing a physically backed gold ETF, will have to purchase, hold, and preserve the digital assets for their clients if permitted. This might lead to an increase in the value of the underlying cryptocurrencies as well as their entire market.
“Authorised participants will have to buy bitcoin if a spot ETF gets approved in order to create shares for an eventual ETF, which will result in significant flows to buy an increasingly illiquid supply of bitcoin,” said CoinShares head of research James Butterfill.
According to Butterfill, investors’ perceptions of bitcoin will significantly change if the surge reaches $40,000 in value.“Market participants would be in full anticipation of it being ‘mainstreamed’ and accepted as a major asset class (like existing ones such as gold etc.).”But he issued a warning: given the erratic nature of digital currencies, the price might go sharply in the opposite direction if there is any unfavorable information about when the approval will happen.
“Any detriment to the early ‘24 timeline for Spot ETFs could have a negative impact on prices and we could be trading in the high 20s again. Although, given recent events, this scenario seems increasingly unlikely.”