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Post-ETF Crypto Market: Developments and Perspectives

Feb 8, 2024 3 min read

One of the most-awaited events in the crypto market, the approval of the Bitcoin Exchange Traded Fund (BTC ETF) has happened, and we can observe how the market is developing.

While it is still impossible to see clearly what impact on the market this event has, some speculations can be already made. Among them, there are optimistic ones and those that forecast Bitcoin's demise.

Thus, what the Bitcoin ETF will bring to the crypto world, investors, and all who are not irrelevant to crypto? Are there any potential threats and challenges that require immediate attention right now? Let’s explore these questions.

ETF Approval: Good or Bad?

The BTC ETF approval is highly beneficial to the crypto market, and its impact in the long term is difficult to underestimate.

Offering new opportunities to investors

The approval of the BTC ETF has facilitated easier access to cryptocurrencies for institutional and retail investors. This has led to a surge in mainstream adoption because more traditional investors feel comfortable entering the crypto market through regulated investment vehicles. It will also expand the reach of crypto to those investors who were restricted from investing in cryptocurrencies due to regulatory limitations.

Individual investors with lower investment potential will also benefit from trading BTC ETFs. Instead of buying BTC which is very risky because of the crypto volatility, they will have access to traditional investment vehicles with lower risks.

Benefiting from regulatory acceptance

The approval of a BTC-ETF provides regulatory clarity for Bitcoin in the context of traditional financial markets. Regulators will establish guidelines and requirements for BTC-ETF issuers, which could help to address concerns related to market manipulation, investor protection, and compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations.

However, regulatory frameworks still continue to evolve, and ongoing regulatory scrutiny remains a key factor that impacts market dynamics.

The market is maturing

The approval of ETFs signals that the crypto market is maturing. Crypto is being accepted as a legitimate asset class within the traditional financial system. As institutional investors increasingly allocate capital to crypto ETFs, the market is likely to become increasingly sophisticated and mature over time.

In other words, the BTC ETF approval is an important milestone in the development of the crypto market. It is expected that it will deliver a significant inflow of cash in the sector and boost further crypto adoption.

Those were good things, but what about bad ones?

Rumors and Speculations

For now, there are many speculations about all the threats and dangers that would come with the BTC ETF, starting from decentralization challenges and finishing with threats to the Bitcoin ecosystem's viability. Those are speculations, however, there are real threats that shall be taken into account.

A Real Threat: Security Challenge

Can you recall how much crypto was stolen in hacks over the last years? The infamous North Korean Lazarus Group is believed to have stolen over $3 bln worth in crypto over the last six years.

According to The Block, the newborn spot Bitcoin ETFs averaged $1.9 bln worth of inflows over the last four weeks, thus making a total of $7.6 bln in inflows. But we shall not forget that the actual funds are not traded, they are kept in the accounts of custodians. Many spot ETFs have Coinbase as their custodian, while some list BitGo as their custodian. In other words, all those billions are kept in the wallets of Coinbase and BitGo.

Now, considering that Lazarus Group could steal around $3 bln over the last six years, how high a temptation could be to hack a custodian account of Coinbase of BitGo? Even if it takes years and millions of dollars to organize the attack, the rewards would compensate for all the efforts.

Thus, ensuring the security of the funds that ensure ETFs is the main and very realistic challenge. Moreover, once the funds are gone, they are gone, literally. Transactions are irreversible, and the hackers from North Korea are unreachable.

Final Thoughts

While the BTC ETF approval means a lot to both the crypto market and the traditional finance ecosystem, it comes with its challenges. Once those challenges are addressed adequately, investors or all types and financial institutions will be able to benefit from reaching this milestone to a full extent.