When most people think about blockchain and Web3, the first thing that comes to mind would most likely be Bitcoin. Aside from being the first decentralized digital asset to be created, it is undeniably the most traded and well-known one.
I still remember when I first began my exploration of Bitcoin and blockchain in 2018, and the concept was still being met with skepticism by many in the traditional financial (TradFi) sector. Since then, TradFi has gradually become more receptive towards Bitcoin and the technology, thanks to better education and awareness around this industry. As someone who has been a firm believer in the potential of Bitcoin to revolutionize the digital economy, this is a remarkable development to witness.
Despite the bear market and overall stagnant sentiment in the past year, some clearly consequential developments in the world of Web3 are emerging. The advent of Ordinals, upcoming Bitcoin halving and the recent spot Bitcoin ETF approvals are just some of the breakthroughs for the industry, and definitely wouldn’t be the last.
Before I go on to explain the significance of a spot Bitcoin ETF approval, I think it would make sense to discuss why ETFs, or exchange-traded funds, have emerged as a popular investment vehicle in financial markets over the past two decades. These versatile securities can be backed by a variety of assets, ranging from stocks and real estate to commodities. ETFs not only enable investors to simultaneously invest in multiple assets, they also simplify the process of investing in traditionally challenging-to-hold and transfer assets, such as commodities like gold or oil.
You can imagine that the introduction of a Bitcoin spot ETF is a significant milestone in the evolution of Bitcoin as an asset class. It opens the door for a much wider range of investors to effortlessly participate in Bitcoin investing, considering that purchasing and securely holding Bitcoin remains a complex and daunting task for many investors.
The journey towards the approval of the first Bitcoin spot ETF has been neither short nor easy. In fact, the first filing for a Bitcoin spot ETF in the United States dates back to 2013, marking the beginning of a decade-long effort to wrap Bitcoin into a regulated financial product. The first regulated BTC futures-based ETF hit the US market in October 2021, but an exchange-traded product that would invest in the asset directly remained out of reach. Over the years, there have been numerous attempts to launch a Bitcoin spot ETF, each facing its own set of regulatory hurdles. Several applications for Bitcoin spot ETFs were finally approved in January 2024 for the US market. This signified a major step forward in the acceptance and legitimization of digital assets within the traditional financial system.
Thanks to the collective efforts of the wider crypto community, including major players like Binance, to grow the industry – Bitcoin and other digital assets have increasingly caught public attention. However, there’s no denying that they are still relatively new concepts that have yet to gain widespread acceptance in mainstream financial circles. For many asset managers, directly purchasing and managing Bitcoin can also be a rather complex and daunting task. Consequently, the direct acquisition and handling of Bitcoin can be lengthy and intricate for investors, often mired in regulatory and operational uncertainties.
The introduction of a Bitcoin spot ETF simplifies this process considerably, completely changing the game for TradFi’s access to Bitcoin and the digital asset market. It allows investors to easily purchase and trade a security that derives its value from actual Bitcoin, with the ETF backed by Bitcoin holdings. This structure provides a more familiar and regulated framework for traditional investors to gain exposure to Bitcoin, bypassing the complexities of directly buying, storing, and managing the digital asset. Essentially, a Bitcoin ETF bridges the gap between the innovative world of digital assets and the TradFi ecosystem, offering a streamlined and accessible investment pathway.
Perhaps most importantly, this development reflects a growing level of trust from regulators in both Bitcoin as an asset and the underlying market infrastructure – including exchanges, custodians, and payment providers – to operate within a compliant and regulated framework. Looking ahead, I anticipate seeing more innovations centered around Bitcoin from Wall Street. This could include the development of new financial products and services, further integration of Bitcoin into investment portfolios, and possibly even broader institutional adoption.
The gradual acceptance of Bitcoin as a new macro asset class by TradFi in the US is a significant shift, as it places Bitcoin alongside established asset classes like gold, stocks, bonds, and real estate. This recognition not only legitimizes Bitcoin’s role in diversified investment strategies but also highlights its potential to become a mainstream financial asset. I expect that this change will play a crucial role in educating a broader investor base about the value proposition of Bitcoin, thereby lending more informed legitimacy to Bitcoin and digital assets as a whole.
Just a few years ago, much of the TradFi world was skeptical of Bitcoin, often viewing it with caution or outright dismissal. The recent move by these institutions to compete in offering Bitcoin-related financial products is a stark turnaround in their stance but a wonderful one for the digital asset industry. As these established financial entities begin to educate their clients and the public about Bitcoin, they are likely to challenge and eventually change the outdated perceptions surrounding it.
Aside from the spot Bitcoin ETF approval, 2024 also marks the 4th Bitcoin halving. From April 2024, the reward for mining a Bitcoin block will reduce from 6.25 to 3.125 BTC. Traditionally, such halvings have been followed by major periods of sustained price growth for Bitcoin, as they effectively reduce the rate at which new Bitcoins are created, thereby constraining supply. The increasing scarcity of Bitcoin is designed to enhance its value proposition, making it more attractive to investors.
This event is also likely to garner considerable attention from traditional investors, amplifying the narrative of Bitcoin being ‘digital gold,’ a comparison that has notably simplified its understanding for investors. This comparison makes sense, especially with the similarities in several fundamental characteristics that Bitcoin shares with gold, such as its finite supply, the significant cost associated with producing new units of both Bitcoin and gold and a decentralized mining process.
Beyond purely monetary considerations, 2023 has been an eventful year for Bitcoin, especially with the development of the Bitcoin Ordinal ecosystem, which has brought a new dimension to its utility. This system allows users to inscribe digital artifacts (Ordinals NFTs and tokens) directly onto the Bitcoin blockchain, linking these artifacts to individual Bitcoins or Satoshis (smaller units of BTC). Unlike traditional NFTs, which typically involve storing only a hash of a digital artifact on a blockchain, Ordinals enables the actual digital artifact to be held on the blockchain. This innovation has spurred a growing market for digital collectibles and could further cement Bitcoin’s position in the digital asset space.
Although still in its early stages, Ordinals and inscriptions are opening doors for integrating decentralized financial products onto the Bitcoin blockchain. This development could transform Bitcoin into a more productive asset, enabling users to engage in various decentralized financial services beyond just buying, holding, and selling. People might be surprised by the innovations and number of users that Ordinals on Bitcoin can bring to the industry over the coming years.
I expect the narrative around Bitcoin to continue evolving, particularly with its role in financial innovation becoming more pronounced. TradFi could increasingly incorporate Bitcoin into a variety of products, such as Bitcoin cashback schemes, Bitcoin-backed lending and borrowing services, Bitcoin savings accounts, or Bitcoin-backed bonds. These innovations would not only diversify the utility of Bitcoin but also integrate it more deeply into the TradFi ecosystem.
We can definitely expect more exciting news in the long term, as there’s potential for Bitcoin to start competing with other macro assets like gold, stocks, bonds, and real estate. As it matures and gains recognition as ‘digital gold,’ its potential as a productive form of capital could become a key differentiator. Beyond its scarcity, the productive use of Bitcoin could be a crucial factor in capturing more market share from other major asset classes, solidifying its position in the global financial landscape.
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