ETF Hope Reignited! J.P. Morgan Analysts, However, Suggest ETF Launch Could Negatively Impact Bitcoin's Short-Term Price

With institutions entering the market, many people have rekindled their hopes for a Bitcoin ETF. However, while a Bitcoin ETF is undoubtedly a positive development in the long term, JPMorgan analysts are not optimistic about its short-term price impact.

2021, Bitcoin ETF

The Bitcoin purchasing services provided by payment processing companies such as PayPal and Square thrived in 2020. Coupled with continued purchases by institutional investors, Bitcoin has transitioned from being a niche market in the past to an institutional market, and is gradually moving towards the direction of becoming a mainstream market.

The market consensus is getting stronger, and chips are moving from the "whales" of Bitcoin in the past to other investors. The influence of these whales on prices will gradually diminish, indicating that concerns raised by the U.S. Securities and Exchange Commission (SEC) about "price manipulation of Bitcoin" will be resolved. With this trend, can the long-awaited Bitcoin ETF by the community in the past few years really be launched in 2021? As market researcher Joseph Young mentioned:

"There is no reason for the SEC to reject a Bitcoin ETF again, as the regulated CME exchange's open interest contracts have been leading the way in the Bitcoin market. It is no longer an unregulated market, so based on the reasons for rejection in 2018, Bitcoin should now have an ETF."

It literally wouldn't make sense for the SEC to reject a Bitcoin ETF again because a strictly regulated exchange in CME is the top $BTC exchange by open interest.

It is no longer an unregulated market. As per SEC's reasoning in 2018, Bitcoin should have an ETF.

— Joseph Young (@iamjosephyoung) January 2, 2021

However, although a Bitcoin ETF is undoubtedly a positive development in the long term, JPMorgan analysts are not so optimistic about its short-term price impact.

Bitcoin ETF Unfavorable for Short-Term Prices

JPMorgan analysts wrote in a report that currently, Wall Street investors primarily invest in Bitcoin through the Grayscale Bitcoin Trust Fund (GBTC). Due to regulatory laws and other restrictions, some financial institutions and funds cannot directly own Bitcoin or even purchase GBTC directly from Grayscale. The only way to invest in Bitcoin is to buy GBTC at a premium on the secondary market, which is the main Bitcoin investment channel in the traditional financial market.

However, the emergence of ETFs will bring competitive pressure to GBTC, leading to a reduction in the premium, thereby reducing the attractiveness of GBTC shares. JPMorgan analysts state that the decrease in GBTC premiums will reduce the incentive for institutional investors to buy Bitcoin, along with the appeal to the general public for trading.

JPMorgan analysts further suggest that the positive impact of a Bitcoin ETF and the subsequent decrease in GBTC premiums could also lead to a significant sell-off by institutional investors who bought in the latter half of last year after the six-month lock-up period ends, further exerting downward pressure on GBTC and Bitcoin prices.