Can Bitcoin ETFs restore crypto liquidity to pre-FTX levels

Journalist

Posted: December 15, 2023

• There have been expectations of elevated flows on crypto exchanges submit the approval.
• Bitcoin was well-placed to make a formidable begin to 2024.

Crypto market was eagerly wanting ahead to the potential approval of spot Bitcoin [BTC] exchange-traded fund (ETF) functions, seen as a extra handy approach for TradFi traders to realize publicity to cryptocurrencies.

With the ultimate deadline of a number of functions due in January 2024, the query, nevertheless, in everybody’s thoughts was – will ETFs reach restoring crypto liquidity to ranges seen earlier than the FTX collapse?

Spot ETFs might flip it round for the market

A latest report by crypto market information supplier Kaiko referred to ETFs because the “single greatest catalyst” in reviving the 2 measures of liquidity – market depth and buying and selling volumes.

As seen from the graph under, market depth was hammered within the aftermath of FTX implosion and stayed suppressed for a lot of 2023. Even the continued market rally didn’t deliver a few significant restoration.

Supply: Kaiko

Nevertheless, spot ETFs would require shopping for Bitcoins in big amount from approved crypto exchanges or different holders. Sometimes, they may even be promoting cash to rebalance their holdings. This might enhance buying and selling exercise on exchanges.

Moreover, spot ETFs are anticipated to imitate the precise worth of underlying Bitcoins. To take care of this, arbitrageurs would constantly purchase and promote relying on whether or not ETF shares are buying and selling at a premium or low cost to Bitcoin’s worth.

Therefore, there was the next probability of enhanced liquidity available in the market as soon as spot ETFs are green-lighted, Kaiko famous.

Circumstances favorable for Bitcoin?

AMBCrypto had earlier reported capital inflows of $155 billion into the Bitcoin market upon clearance of the ETFs, with Bitcoin’s spot worth zooming to someplace between $50,000 and $73,000 consequently.

This was yet one more robust instance of spot ETFs having a positive affect in the marketplace.

As of this writing, BTC held on to its beneficial properties above $42,000, AMBCrypto noticed utilizing CoinMarketCap’s information.

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Shivam Thakral, CEO of India cryptocurrency change, famous a constructive market sentiment following the U.S. Federal Reserve’s dovish stance.

He stated,

“We are able to count on and spectacular begin of 2024 for Bitcoin and different belongings as occasions like ETF approvals are lined up for early 2024.”