As estimated by crypto investment firm Galaxy Digital, Bitcoin is projected to see a 74.1% price increase in the first year after the U.S. launch of spot Bitcoin ETFs.

In a blog post dated Oct. 24, Charles Yu, a research associate at Galaxy Digital, projected that the total market size for Bitcoin ETFs could reach $14.4 trillion in their first year. He derived the 74% price increase estimate by comparing the potential impact of fund inflows into Bitcoin ETFs with that of gold ETFs.

Galaxy Digital argues that ETFs could offer a more efficient investment vehicle than existing options like trusts and futures, which currently hold over $21 billion in value. The firm anticipates that fund inflows could increase to $27 billion in the second year and $39 billion by the third year.

Investor accessibility and prospects

Launching Bitcoin ETFs could particularly benefit the U.S. wealth management industry, which Galaxy Digital identifies as the most direct market to gain from such a development.

“As of October 2023, assets managed by broker-dealers ($27 trillion), banks ($11 trillion) and RIAs ($9 trillion) collectively totaled $48.3 trillion.”

Galaxy Digital note on Bitcoin price

Spot Bitcoin ETFs could offer investors a more regulated way to gain exposure to Bitcoin. These products would likely partner with traditional financial institutions, ensuring strong customer protection and diverse investment offerings.

Recent market reactions underscore the high demand for such investment vehicles. Last week, a mere rumor led to a 10% spike in Bitcoin prices within hours. Similarly, the announcement of BlackRock’s proposed Bitcoin ETF led to a 12% gain.

However, Galaxy Digital also pointed out the limitations of current investment products, such as high fees, low liquidity, and tracking errors. These issues make them less appealing to a broad investor base.

A spot ETF could offer investors a way to gain direct exposure to Bitcoin without the need for self-custody and management of the asset.

“While fees haven’t been listed by bitcoin ETF applicants yet, ETFs generally offer lower fees than hedge funds or closed-end funds, and the high number of ETF applicants will likely aim to keep fees low to remain competitive.”

Galaxy Digital note on Bitcoin price

The U.S. Securities and Exchange Commission (SEC) reviews 12 spot Bitcoin ETF applications submitted by Grayscale, 21Shares & Ark, BlackRock, Bitwise, VanEck, WisdomTree, Invesco, Galaxy, Fidelity, Valkyrie, Global X, Hashdex, and Franklin.

Despite this, Yu remains optimistic. He believes his estimates are conservative and do not account for the “second-order effects” that could follow the approval of a Bitcoin ETF. He expects other global markets to introduce similar offerings, further boosting Bitcoin’s appeal.

Looking ahead, Yu suggests that 2024 could be a pivotal year for Bitcoin, citing potential ETF inflows, the upcoming Bitcoin halving in April 2024, and possible changes in interest rates as key factors that could influence its price.

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