**Spot ETFs Expected to Reduce Crypto Whale Influence, Decrease Bitcoin Volatility**
*Analysts worldwide are anticipating the approval of exchange-traded funds (ETFs) that directly invest in bitcoin, instead of in futures tied to the cryptocurrency. This approval would likely have a bullish impact on bitcoin prices, but opinions differ on whether it would reduce the cryptocurrency’s notorious price volatility.*
**The Impact of Spot ETFs**
It is well-known that the Bitcoin blockchain may be decentralized, but the ownership of the token, BTC, is concentrated in the hands of a small number of individuals known as “whales.” These whales hold a significant influence over prices, often causing drastic price swings. A spot ETF could mitigate this influence by broadening the owner base and limiting the control of these whales.
Nate Geraci, the president of The ETF Store, stated that a spot ETF would expose bitcoin to a wider range of market participants, including institutional investors and financial advisors. This greater pool of investors could potentially decrease volatility by making it more difficult for large bitcoin whales to manipulate prices.
**The Potential Market Size of a U.S. Bitcoin ETF**
According to estimates from Galaxy Digital, the addressable market size of a U.S. bitcoin ETF could reach $14 trillion in just one year after the spot ETF’s launch, and $39 trillion in the third year. This extensive uptake could significantly enhance liquidity in the underlying asset, leading to less volatile trading conditions.
**The Influence of ETFs in Equity Markets**
Research has shown that in equity markets, an increase in ETF ownership boosts the liquidity of underlying stocks, leading to more stable trading conditions. This suggests that the introduction of spot ETFs for bitcoin could have a similar effect on the cryptocurrency’s market liquidity and volatility.
**The Debate on Spot ETFs and Volatility**
However, not all experts agree on the impact of spot ETFs on bitcoin volatility. Laurent Kssis, an ETF expert, and crypto trading adviser at CEC Capital, believes that spot ETFs could actually lead to increased BTC price volatility.
Kssis argues that in cash creation, where APs provide cash and the issuer purchases the actual asset, there is potential for arbitrageurs to trade discrepancies between the cash and futures price of bitcoin, inadvertently creating volatility. These concerns have led to rumors that the SEC wants ETF applicants to work through cash creation.
**Conclusion**
While analysts anticipate that the approval of spot ETFs investing directly in bitcoin could have a positive impact on price and liquidity, there remains a debate about the potential for increased volatility due to cash creation. The approval of these ETFs by the U.S. Securities and Exchange Commission will undoubtedly have a significant impact on the future of bitcoin and its role in the financial markets.
