5 Factors to Bet on Bitcoin ETFs
10/30/2024 20:25
Bitcoin, which hovers around $73K, may soar higher due to political benefits, mainstream acceptance, rising wealth effect, protection against inflation and Fed rate cuts.
Bitcoin prices surged above $73,000 Tuesday for the first time since March, thanks to massive inflows into dedicated exchange-traded funds (ETFs) as well as market speculation surrounding the outcome of next week’s U.S. elections. Traders are betting on bullish market conditions for bitcoin regardless of the election outcome.
Against this backdrop, below we highlight a few factors that could favor bitcoin or crypto ETF investing. Investors can keep track of ETFs like Grayscale Bitcoin Trust GBTC, iShares Bitcoin Trust IBIT, Fidelity Wise Origin Bitcoin Fund FBTC, ARK 21Shares Bitcoin ETF ARKB and Bitwise Bitcoin ETF BITB.
The ETF GBTC charges 150 bps, IBIT charges 25 bps, FBTC charges 25 bps, ARKB charges 21 bps and BITB charges 20 bps in fees. All these ETFs gained about 4% on Oct. 28, 2024 (read: 5 ETFs to Tap the Ongoing Bitcoin Rally).
Both the Presidential candidates – Trump and Harris, talking about favorable changes to crypto regulations in the world’s largest economy, Bitcoin has taken center stage as a key asset to navigate the current landscape of uncertainty (read: Bitcoin ETFs Surge: Political Uncertainty Meets Digital Opportunity).
Donald Trump is widely seen as a pro-crypto presidential candidate. Meanwhile, Vice President Kamala Harris also holds a favorable view of the crypto market, seeking to ease the Biden administration’s stringent stance on cryptocurrencies, which adds fuel to the growing optimism.
Since the launch of the first Bitcoin ETFs on Jan. 11, 2024, the asset has surged more than 60%, even hitting a record high of just under $74,000. The ETFs represent a landmark in Bitcoin’s journey, offering both retail and institutional investors a regulated and accessible means to invest in the cryptocurrency. This development not only enhances liquidity but also contributes to price stability.
This growing stability is resulting in increased adoption of digital assets. Research indicates that by 2024, an amazing 6.8% of the world’s population – approximately 560 million people will own cryptocurrencies, as quoted on coingape.com. The United States is leading the charge in this ongoing digital race, with an astounding 40% of American adults now holding some cryptocurrency or the other, up from 30% in 2023, per the above-mentioned source.
Cryptocurrencies have hit headlines lately as early investors bask in newfound wealth. Investors should note that early crypto investors have seen life-changing wealth, but its impact on spending—known as the wealth effect—hasn't been as overgenerous as lottery winnings.
Marginal propensity to consume (MPC) from crypto is roughly one-third the estimated MPC from one-time income shocks (e.g., economic stimulus payments) and is much smaller than those found in studies of lottery winnings, which range from 50% to 100%.
But over a decade, crypto windfalls increased household consumption by $30 billion per a study, with each unrealized dollar leading to nine cents of spending. The figure is almost double the marginal propensity to consume (MPC) when it comes to stock-market returns. It has also been noticed that some of the sudden wealth generation from crypto goes into real estate, boosting markets in crypto-friendly areas.
Increasing bets of interest rate cuts by the Fed in the coming days make cryptocurrency favorable. The greenback's value tends to move inversely with Fed’s interest rate adjustments, resulting in decreased demand for the currency and creating opportunities in digital currencies.
Bitcoin is often touted as a hedge against inflation. Bitcoin has a fixed supply. This move contrasts with traditional fiat currencies, which central banks can issue in unlimited quantities. Thus, in times of inflation, the value of fiat currencies tends to fall. Meanwhile, some market watchers view Bitcoin as a store of value due to its limited supply which can preserve wealth amid high inflation. Having said this, we would like to note that the crypto space is extremely volatile.
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