Spot Bitcoin ETFs Would Reduce Power of Whales and Increase Stability: Nansen Analyst

Ruholamin Haqshanas

Last updated:

January 18, 2024 22:00 EST | 3 min read

Source: iStock/Marie-Elizabeth MaliThe cryptocurrency landscape is poised for a major change with the recent approval of spot Bitcoin (BTC) exchange-traded funds (ETFs).

Aurelie Barthere, Principal Research Analyst at Nansen, believes the approval will specifically impact crypto whales, who control a large share of the current token supply and wield unmatched influence in spot markets.

“We know that crypto token ownership is very skewed, with ‘whale’ wallets owning a large share of the token supply,” Barthere said in a recent interview with Cryptonews.com.

“Any change in that structure would probably reduce price volatility in the long term, intuitively.”

She also opined that the arrival of ETFs will bring more liquidity to the spot markets, which could lead to a more stable market.

Last week, the SEC granted approval to 11 spot Bitcoin ETFs, marking a significant departure from more than a decade of regulatory opposition.

The decision comes more than a decade after the initial filing for a crypto-based ETF, a financial product designed to track the performance of various assets such as commodities and equities.

The newly approved ETFs will specifically track the spot market price of Bitcoin.

Wall Street giants such as BlackRock, Fidelity, and VanEck, alongside several native crypto firms, are among those bringing these ETFs to the market.

The approval of these products has the potential to attract significant capital inflows into Bitcoin, with many crypto utives expressing enthusiasm about their impact on the digital asset market.

Barthere Expects a Redistribution of Bitcoin Supply Among New Buyers

When asked about the immediate effects of Bitcoin spot ETFs, Barthere foresees a redistribution of the token supply to new buyers but cautions that investor sentiment hinges on broader economic factors.

“It will likely lead to some redistribution of token supply to new buyers. ‘Investor sentiment’ depends mainly on other factors, e.g., if inflation continues to decelerate and the Fed delivers on the rate cuts expected by markets,” she elaborated.

Regarding the short-term performance of these ETFs, Barthere expects lower-fee ETFs to attract more inflows.

“ETFs and futures are different instruments; we would expect futures to stay favoured for trading and hedging, and ETFs to be a go-to retail instrument, like in traditional finance.”

The competitive landscape among Bitcoin spot ETF providers, according to Barthere, will be shaped by factors like reputation, size, existing footprint, and management fees.

“Reputation/size/existing footprint + management fee will probably lead to some leaders dominating the market,” she predicts.

JPMorgan analysts have also predicted that the success of these newly created ETFs will hinge on fees and liquidity.

Given the high 1.5% fees associated with GBTC, they expect significant outflows from this Bitcoin trust.

Furthermore, speculative investors who purchased discounted GBTC shares in the secondary market over the past year, anticipating the elimination of the discount to Net Asset Value (NAV) upon conversion, are likely to take profits.

This could lead to approximately $3 billion exiting GBTC and flowing into the newly launched ETFs.

The analysts anticipate even larger outflows of $5-$10 billion if GBTC fails to reduce its fees to the 0.25% level set by issuers like BlackRock.

ETH Spot ETFs to Take the Spotlight

Barthere anticipates positive effects on Ethereum and altcoins, spurred by speculation on subsequent spot ETFs.

“There will probably be speculation on the next spot ETFs, which is positive for ETH and altcoins,” she asserted

She added that other cryptocurrencies, like Ethereum, will be seeking ETF approval soon.

“Yes. BlackRock is rumoured to have already started the application process for a spot ETH ETF,” she revealed.

As reported, QCP Capital, a Singapore-based crypto trading firm, has forecasted that Ethereum will outperform Bitcoin in the medium term as the narrative surrounding potential ETH Spot ETF approvals will help the cryptocurrency outshine BTC.

Meanwhile, the approval of Bitcoin spot ETFs, in Barthere’s view, removes regulatory and custodial obstacles, facilitating traditional finance’s investment in BTC.

However, she noted that blockchain technology adoption remains a separate process, highlighting ongoing pilots by major institutions.