Key Takeaways

• Researchers claim ETF rejections wouldn’t influence BTC pricing.
• “BTC is incorrectly priced” according to Helseth and Lunde.
• Showing different scenarios in case of SEC rejects or approves all ETF applications.

K33 Research, a research-led digital assets brokerage with investment services, released a report  regarding a 2023 cryptocurrency market update. The report highlighted two scenarios regarding spot ETFs in the US. 

Anders Helseth, Head of Research at K33, and the Senior Analyst Vetle Lunde, speculate potential outcomes if SEC rejects or approves current ETF applications.

The researchers claim that while ETF application approval would provide a significant surge to Bitcoin and Ethereum, a denial would be “negligible”.

Crypto In 2023

The report highlights a key event in the crypto sector, specifically regarding ETF applications. Grayscale, a digital asset manager, filed a lawsuit against the SEC and won it, as court said the regulating body’s rejection of the ETF application was “arbitrary and capricious”.

“The Grayscale verdict, which greatly enhanced the prospects of an eagerly awaited Bitcoin spot ETF, generated a notable market surge, resulting in a 6% gain last Tuesday. However, this bullish momentum was short, as Bitcoin retraced its entire rally by Thursday, concluding the week with an unremarkable weekly return of -1%. Also on Thursday, the SEC predictably delayed all active BTC ETF filings. The announcements came after BTC’s retracement, suggesting the two events were unlinked,” reads the start of the report .

A prior landmark in the Bitcoin ETF sector involved BlackRock, the world’s biggest asset manager, who filed for a spot Bitcoin ETF, yet to be approved by the US Securities and Exchange Commission (SEC). 

“Prices are now the same as before the Blackrock news that injected new life into BTC spot ETF chances. In the same time span, the Nasdaq 100, often a good indicator of the market’s general risk appetite, is up 2%. The BTC spot ETFs will be huge, and with improved odds of approval, it looks evident that the market is mispricing it.”

Helseth and Lunde also claim that “the market seems to underestimate the potential impact of U.S. BTC spot ETFs. A Spot ETF approval should attract enormous inflows, creating significant buying pressure on BTC. Conversely, if the BTC spot ETFs are rejected, nothing changes.”

In a conversation with CCN, Helseth claimed “ETFs in the near future are not important for the future of crypto. But when the spot ETFs come, we think it will create significant buying pressure on Bitcoin and Ether. And when the price starts rising, more people jump on etc. So it’s more a matter of timing, we think now is an especially opportune time to buy.”

Scenario 1: SEC Rejects ETF Applications

For months, the crypto market has awaited a definitive response from the SEC on spot ETF applications submitted by Wall Street giants like BlackRock, Fidelity, and Grayscale.

As previously mentioned, BlackRock’s application announcement sent ripples through the market, causing Bitcoin to surge in price and leading adjacent Wall Street giants to follow suit by filing for their own ETFs.

The SEC hasn’t responded to these applications yet, but BlackRock and others have resubmitted theirs, with Coinbase as a surveillance partner to meet anti-money laundering requirements.

However, Helseth and Lunde claim ETF rejection wouldn’t negatively affect the market or the tokens involved.

“An ETF denial will have no material impact on the market structure. The crypto market will remain as is, Grayscale will stay close-ended, and market participants will have access to the same venues to trade as we do today. The initial market reaction to denial will be negative, but over the medium to long-term horizons, rejections won’t matter – new filings will continue to appear and will eventually receive approval. It follows that the impact of an ETF denial on BTC should be negligible.”

Scenario 2: The SEC Approves ETFs

“An immediate massive supply absorption will follow an ETF approval. The competitive environment from seven BTC ETFs, all launching simultaneously, will be immense.”

The prediction coincides with the mainstream opinion regarding the influence of ETF success in the market.

Helseth and Lunde point out a major flaw in current assumptions in BTC pricing due to a direct influence of ETF-related optimism.

“With the solid odds for ETF approvals, the market is fundamentally mispricing BTC. It is reasonable to assume that ETF approvals attract enormous inflows, absorb liquidity from the market, and be hugely positive for BTC prices.”

If approved, flows may be highly bullish. This is evident when comparing U.S. spot ETFs to previously launched products. ProShares’ costly futures-based ETFs, despite launching a week ahead of weaker competitors, attracted 20k BTC in the first ten trading days. In comparison, Canadian ETFs, with a smaller market, drew 60k BTC in the first four months after launch.