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Crypto surges once more as ETF finish line comes into sight

Wed, 10/25/2023 - 14:28

As any cryptocurrency investor or trader will tell you, it's been somewhat of a rollercoaster ride for Bitcoin and other digital currencies over the past couple of years. After a prolific rise, the bubble burst in late 2021. From a high of $64,400, Bitcoin crashed hard to a lowly $15,760 by November 2022. After the latest in a series of huge boom-bust cycles, it was understandable that many were wary to call a new bull market in digital assets, but since Bitcoin reached gains of over 100% in less than 12 months this Monday (23/10), sceptics everywhere finally began to believe that the crypto thaw was underway. Then, in the space of just a day, the original cryptocurrency shot up a full 10%, enough to melt the heart of even the biggest naysayer.

And although prices have corrected slightly since then, this week has truly been a watershed moment. Typically amongst some of the most conservative crypto investors, institutions recorded a fourth consecutive week of net inflows, with the latest figures putting their total weekly cash invested at $66 million. As usual, the factors behind the decisive market movement are varied and numerous, but chief amongst them right now has to be the imminent approval of spot Bitcoin ETFs by the US Securities and Exchange Commission and coming shifts in the regulatory framework at large. As we head into Q4, crypto traders and investors are understandably keen to see where the market is headed. In this piece, we'll look at these two factors and try to draw conclusions for the rest of the year and beyond.

X marks the spot

After much discussion and delay, it appears that the long-awaited arrival of spot Bitcoin ETFs will soon be upon us. Indeed, it transpired this week that Blackrock had listed its prospective product on the Depository Trust and Clearing Corporation database under the ticker $IBTC. But Blackrock is by far from the only horse in the race, with similar applications under review from Ark Invest, Invesco, and crypto fund trailblazer Grayscale, whose trust model has its downsides that full security status would mitigate.

After kicking the can down the road as long as is legally possible, the end of the SEC's 240-day review period is fast approaching. The most likely scenario, according to Volatility Shares Chief Investment Officer Stuart Barton, is that multiple products will be approved all at the same time so as to avoid giving one provider any undue advantage over its competitors. And while nothing is yet set in stone, the landmark overturning of the SEC's original ruling to deny Grayscale its spot ETF by a three-judge panel for the DC Court of Appeals in August has been taken by many market participants as a sign of a key sea change.

This dynamic, coupled with the institutional investment surge already noted, looks as if Bitcoin could be headed for a new bull market in the weeks and months ahead. As Woo Network's Jack Tan wrote in a recent note, "Bitcoin is in an 'anti-gravity' phase and could hit $75,000 in the coming months," going on to add that "the sudden spike is just a preview of what will happen if ETFs actually get approved."

Regulators gonna regulate

For many years, the cryptocurrency market was able to avoid regulation as a kind of outcrop of the financial markets populated exclusively by tech aficionados and early adopters. However, starting with the initial big boom of 2017 and intensifying with each subsequent bull cycle, digital currencies (Bitcoin especially) have garnered more and more attention from regulators the world over. The problem remains the lack of harmonisation globally, with huge variations in the way cryptocurrencies are treated.

For instance, in places like Switzerland and Singapore, crypto innovation is actively encouraged, and there is a clear legal framework for investors and businesses to operate within. Meanwhile, we also have countries like China that have cracked down on cryptocurrency activity, outlawing ICOs and cryptocurrency exchanges altogether. Even within the US, the lack of an unequivocal federal line means that there is huge legal variation between individual states. The SEC, however, cannot seem to reach a consensus on whether tokens and coins can be considered securities and has changed its positions several times since the 2017 DAO report was released. 

Beyond security status, investors and traders are most interested in taxation and it appears that nationwide clarity is finally coming to the US on this particular matter. The IRS has finally released guidelines on how to calculate and report bitcoin gains and losses, and people must now declare their cryptocurrency holdings and transactions on their annual returns. Exchanges are also being required to implement strict KYC and AML checks on their depositors, and it is hoped that once both the tax and legal compliance issues are ironed out, even more institutions and funds will get on board with BTC, which will most likely result in further gains.

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