**Crypto Whales Face Challenge from Spot ETFs as Bitcoin Volatility May Decrease**
As the U.S. Securities and Exchange Commission (SEC) is expected to approve exchange-traded funds (ETFs) directly investing in bitcoin, analysts believe this move could bring significant changes to the cryptocurrency market. The ETFs are anticipated to reduce the influence of crypto whales and boost liquidity, leading to potentially less volatile trading conditions.
**Spot ETFs and Whales’ Influence**
The approval of spot ETFs has the potential to attract a broader base of investors, including institutional players, effectively reducing the control of the whale investors. Nate Geraci, president of The ETF Store, pointed out that a larger and more diverse pool of investors through the ETF wrapper could make it harder for the larger bitcoin whales to manipulate prices. This indicates that the market might witness a decrease in the violent price swings often triggered by these influential holders.
**Addressable Market and Liquidity Boost**
Galaxy Digital’s estimates suggest that a U.S. bitcoin ETF could target a market size of $14 trillion within a year of the spot ETF launch, potentially reaching $39 trillion by the third year. Such a wide-scale uptake has the potential to enhance liquidity, creating a more stable environment where large orders can be absorbed at steady prices, thus minimizing rapid fluctuations.
**Influence of ETFs on Liquidity**
Drawing insights from traditional equity markets, it is found that ETF ownership tends to boost the liquidity of underlying stocks. A paper authored by Mehmet Saglam, Tugkan Tuzun, and Russ Wermers presented the impact of ETFs on stock liquidity, indicating that these investment vehicles increase liquidity in the underlying assets by trading against potential price disparities between the ETF and the underlying stocks.
**The Dual Nature of Spot ETFs**
While many analysts expect spot ETFs to decrease bitcoin volatility, expert Laurent Kssis argues that ETFs could inadvertently create volatility through cash creation. The process, involving the issuer purchasing the actual asset with cash, creates potential for arbitrageurs to trade discrepancies between cash and futures prices, leading to unpredictability in the market.
**SEC’s Stance and Future Implications**
Rumors have emerged about the SEC’s inclination towards the cash creation model for ETF applicants, indicating a possible future trend in the market. Whether spot ETFs will actually reduce bitcoin volatility or contribute to it remains a subject of debate among experts, and will only be known once these investment vehicles become part of the crypto ecosystem.
I have been a full-time professional writer for over 10 years, and have written for some of the biggest publications in the world. My work revolves around cryptocurrencies and blockchain technology, and I am widely considered to be one of the leading experts in these fields.I have written two books on the subject matter, and my articles have been featured in major news outlets such as The Wall Street Journal, Forbes, and Huffington Post. In addition to writing, I also give talks and seminars on cryptocurrency investing, and am a regular commentator on CNBC, Bloomberg, and other financial news networks.
