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Market Lab Report - Bitcoin spot ETF vs. GLD ETF

When the first US gold ETF GLD was launched, the price of gold rose in the ensuing years in part because it made gold far more investible by retail and institutions. The same will be true for Bitcoin.

Yesterday, the US SEC approved Bitcoin spot ETFs, signaling a significant shift in the investment landscape for digital assets. All eleven issuers that applied, including Bitwise Investments, have received authorization to start trading their Bitcoin spot ETFs today.

The introduction of a spot Bitcoin ETF is a milestone event with the potential to significantly influence the future of investment. ETFs can bring niche or alternative assets into the mainstream investment world, as seen with commodities like gold and crude oil. The most pertinent example might be the introduction of the first US gold ETF GLD in November 2004, which, despite initial challenges, revolutionized gold investing and led to substantial gains for the asset class.

Post-launch, the price of gold increased for nine consecutive years, marking the longest run of annual gains in its recorded history. While the ETF wasn't the sole driver of this rally, it played a significant part by attracting $89 billion in inflows globally, equivalent to 2,667 metric tons of gold. This surge in demand, against the backdrop of gold's limited supply, likely contributed to its rising prices.

But keep in mind that investor capital doesn't flood into new ETFs overnight. Following the gold ETF launch, inflows grew gradually over the years. While it's challenging to predict the exact amount that will flow into Bitcoin ETFs, the pattern is expected to be similar: a steady increase over time as the ETFs gain approval across more platforms and investors grow accustomed to the new asset.

The introduction of Bitcoin ETFs is not expected to cannibalize existing investment methods, such as purchasing Bitcoin on Coinbase or using cold storage wallets. The gold ETF experience suggests that rather than detracting from other forms of investment, the ETFs will likely help establish Bitcoin as a mainstream asset and broaden investor interest. For gold, this led to a significant increase in purchases of gold bars and coins following the ETF launch.

In conclusion, the launch of a spot Bitcoin ETF has the potential to transform Bitcoin into a mainstream investment asset. Just as the gold ETF changed the perception and accessibility of gold investment, the Bitcoin ETF could do the same for cryptocurrency, potentially ushering in a new era where Bitcoin gains widespread acceptance among a variety of investors.

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