Investors in bitcoin have had two things to get particularly excited about of late: the prospect of the first bitcoin exchange-traded fund coming to market, and the digital currency‘s massive 2016 gain, when it more than doubled in value.
But whether those gains hold may depend, in part, on whether the ETF is approved.
Commodity-based ETFs—which a bitcoin ETF would likely be deemed as, given that both the IRS and the U.S. Commodity Futures Trading Commission classify bitcoin as a commodity rather than a currency—are typically structured as grantor trusts, and they have to hold the underlying commodity to cover a portion of their assets. If a bitcoin ETF saw heavy inflows, that would require the fund provider to purchase bitcoin, and that demand could lead to a spike in prices.
Spencer Bogart, a bitcoin analyst at boutique investment bank Needham Co., on Tuesday wrote that the launch of a bitcoin ETF would, in the first week alone, lead to an influx of $300 million in new investor capital into the bitcoin ecosystem. Such inflows could expand the cryptocurrency’s size to nearly $15 billion. By comparison, that is about $1 billion more than the market capitalization of Twitter Inc.