The rise of Bitcoin's (CRYPTO: BTC) price over the last decade has been primarily the result of retail buyers. While retail investors are more common than their institutional counterparts, institutional investors, such as hedge funds and other financial companies, have deep pockets and could prove to be the next driver of Bitcoin's adoption and price ascension.
However, most of these institutional companies have yet to get in on the Bitcoin game due to a handful of obstacles, and one of those is the lack of approval of a Bitcoin exchange-traded fund (ETF) on the stock market.
But that could be changing soon.
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The current landscape
The history of Bitcoin ETF approval attempts date back to 2013. Since then, several hopeful companies, including Cathie Wood's Ark Invest most recently, have applied to the Securities and Exchange Commission (SEC) for approval of a Bitcoin ETF only to be denied. In Ark's case, this was the company's third time vying for approval.
Currently, there are Bitcoin-related products trading on the stock market, but they do not hold actual Bitcoin, and thus are not true ETFs. The majority of these ETFs hold Bitcoin futures or companies involved with Bitcoin, and they do not accurately represent Bitcoin's price movement. A true Bitcoin ETF would hold actual Bitcoin and more accurately track the cryptocurrency's price.
Arguably the most notable Bitcoin fund today comes from digital asset manager Grayscale. The company's Bitcoin Trust is the most popular and valuable Bitcoin-related product on the stock market but still has yet to receive approval from the SEC to become a true ETF. Due to continuous rejections, Grayscale actually sued the SEC in late 2022 because of its belief that the decision was "arbitrary, capricious and discriminatory." Proceedings from this lawsuit are scheduled to occur in the coming months.
Although the argument to continuously deny these applications on the SEC's behalf seems to lack some substance, the agency repeatedly cites concerns over fraud, manipulation, and investor protection as the core reasons getting in the way of approval.
A looming decision
As a result of mounting frustration and a growing united effort of disgruntled companies, there is growing belief that approval of a Bitcoin ETF could be closer than ever. In fact, one Bloomberg ETF analyst believes that as regulatory clarity is brought to the crypto industry it could lead to approval sometime in summer 2023.
The primary reason approval would help Bitcoin's price is because it would make it easier for institutional investors to invest in the cryptocurrency, as many have restrictions against investing in assets outside of traditional stock markets. Unlike the more common retail investors, these institutions have significant reserves of capital at their disposal.
Just to give a glimpse of a potential impact on its price in the short term, when the first Bitcoin ETF was approved in Canada in February 2021, Bitcoin's price increased by over 15% in just a few days. Given the stark difference in trading volume and access to capital between Canadian markets and U.S. markets, approval in the States could dwarf that 15% move.
Most importantly, the approval of a Bitcoin ETF could help catapult Bitcoin adoption as institutional investors who have been hesitant to invest due to a lack of regulation, or have been prohibited from trading assets not on the stock market, would be able to gain exposure to the world's most valuable cryptocurrency. Approval of a Bitcoin ETF essentially gives Bitcoin a stamp of validation from the SEC.
While only time will tell as to when a Bitcoin ETF gets approval in the United States, it seems inevitable that one day it will become reality. Simply put, each year there seems to be greater demand for exposure to Bitcoin from institutional investors.
Highlighting this trend, financial giants BlackRock (the world's largest asset manager) and Fidelity (the third-largest asset manager in the U.S.) have both recently launched their own Bitcoin products to meet the growing appetite of clients. If this is a sign of what is to come, the likelihood of a true Bitcoin ETF in the U.S. looks greater by the day, and that could mean great things for Bitcoin's price.
