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Bitcoin ETF and crypto adoption in Africa

Bitcoin ETF

Bitcoin ETF has been the most popular topic in crypto at the beginning of the year 2024. US’s securities and exchange commission (SEC) approved the ETFs in a rather unceremonious manner, first a tweet from official SEC Twitter (X) account was posted that ETF was approved. Hours later, Gary Gensler, SEC commissioner tweeted that SEC twitter account had been compromised and the tweet sent earlier had been unauthorized. Hours later, on January 10 SEC officially approved Bitcoin ETF in USA.

What is a bitcoin ETF?

A bitcoin Exchange Traded Fund (ETF) is a financial instrument that gives investors exposure to bitcoin market. Well, you may ask; anyone has exposure to bitcoin market all that is needed to just to open a wallet like binance, coinbase and buy directly. Good question, but that is not how it works for majority of mainstream investors especially institutional investors

Investors usually use ETFs to diversify their portfolio. This is because an ETF can be product that tracks a basket of shares, bonds or other investment assets so investors have exposure to those basket of assets without holding a particular share or asset. In case of bitcoin ETF, it tracts the price of single asset; bitcoin. A bitcoin ETF enables investors to make money (or lose) based on daily movements of bitcoin price without directly holding the bitcoin in a wallet. Instead the bitcoin ETF trades on traditional stock markets and exchanges that mainstream investors usually invest in. Therefore, investors own shares in a fund that holds the physical (real) bitcoin. This is different from what most of normal native crypto users are used to; holding bitcoin in a wallet. The rational for this is for investors to avoid the pitfalls that come with bitcoin ownerships such private keys, security etc. It is taunted as one of the ways that bitcoin can achieve mainstream adoption. The long term benefit of Bitcoin ETF should be increased liquidity and improved stability in the bitcoin market with more money coming in from larger investors. Furthermore, bitcoin ETF is another milestone in legitimization of Bitcoin as a real world asset class. In USA alone, the equities ETF market is estimated at $5.4 Trillion.

Initial impact

Analyzing data from various outlet after the ETF launch shows that Blackrock became the first company to get to $1billion in BTC assets under management (AUM). According to Blockworks, spot bitcoin ETFs had a combined $10b in trading volume in the first 3 days since launch. At the time of writing, the the 24 hour trade volume is around $1 billion while total market cap is over $25billion. This is according to Bitcoin ETF tracker.

Despite the above statistics, the impact on price of bitcoin has not been as most investors anticipated. Bitcoin lost about $7000 since the news broke. Immediately it was approved, there was about $2b flowing into bitcoin ETFs. Bitcoin price shot up to around 47,000 and has since gone to lows of $39,000 before regaining the $40,000 price point. The ‘selling the news‘ phenomenon in investing where investors sell when good news break instead of holding for future profits has been attributed as one of the reason for bitcoin price behavior.

Deutsche Bank report report indicated some investors see an even further drop to $20,000 levels by January next year. 15% see the price ranging between $40,000-$75,000 this year. Nonetheless, bitcoin currently sits at around $40,000. Analysts generally have the opinion that Bitcoin ETF is a good thing and will eventually have a positive impact on bitcoin price. In fact, the drop might attract more investors to finally get in at lower desirable prices.

Days later it has been reported that in US, Bitcoin ETFs became the second largest ETF asset class by surpassing silver. This is in terms of Assets under management (AUM).

Reactions from Africa

The reactions on the bitcoin ETF approval has largely been positive in Africa. Many expect it to have positive impact on bitcoin price. In Africa most government and sceptics have largely avoided bitcoin and crypto in general either due to scams associated with it or its complicated nature. However the adopters in Africa would be excited by ETF approval as it gives more legitimacy to bitcoin as an investment asset. Bitcoin being a decentralized digital asset, holders of bitcoin anywhere would gain if they hold bitcoin in their crypto wallets.

In Kenya, BitcoinKe reports that the capital markets regulator, CMA saw ETF approval in USA as good development and would give guidance on crypto within a year or so. In South Africa, the Financial Sector Conduct Authority (FSCA) has indicated it will grant licenses to 50 crypto asset service providers in coming weeks. It is unclear if this is related to ETF approval as South Africa has been on this trajectory even before the ETF news. Luno exchange CEO in South Africa says ETF will pave way for more institutional investors in the space.

In 2024, another bitcoin halving is expected sometimes in April where the reward for miners will be cut by half. Bitcoin halving usually has positive impact on price action and coupled with developments in ETFs, many investors are upbeat that this year will see bitcoin rise to new heights. Time will tell.

Chris Kariuki

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