• 2024-08-07
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Bitcoin's Path Cleared, Yet Lacking Momentum

On January 10, 2024, the U.S. Securities and Exchange Commission (SEC) officially approved the listing and trading of multiple spot Bitcoin exchange-traded products (ETFs). However, after the announcement, the entire cryptocurrency market reacted unexpectedly with indifference, and it has even been declining in recent days. Why would such a significant positive development result in this "abnormal phenomenon"? Let's delve into the matter and uncover the underlying logic behind Bitcoin's price fluctuations.

Let's take it step by step, starting with understanding what the approval of Bitcoin ETFs means.

ETF stands for Exchange Traded Fund, which is a type of fund product that tracks market indices and can be freely bought and sold on stock exchanges. In simple terms, an ETF is like a basket containing a variety of stocks or other assets selected in proportion to a particular stock index. If you have such a basket, you have chosen some stocks based on a stock index (such as the SSE 50 or CSI 300) and placed them in this basket. Each type of stock in this basket occupies a certain proportion, which is the same as its proportion in the stock index. Unlike ordinary funds, ETFs can be freely bought and sold on stock exchanges throughout the trading day, just like stocks. This allows investors to easily purchase and sell ETF shares.

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A Bitcoin ETF, on the other hand, is a significant step forward based on this concept. It is a special type of ETF whose investment focus is Bitcoin. This means that investors can indirectly hold Bitcoin by purchasing a Bitcoin ETF, without the need to directly buy and store Bitcoin itself. This provides convenience for investors who want to invest in Bitcoin but are concerned about the storage and security issues of digital currencies.

The SEC's approval of Bitcoin ETFs signifies that Bitcoin, as an investment product, has received an official pass from a mainstream U.S. financial regulatory agency. Although the SEC also stated that approval does not represent an endorsement of Bitcoin itself. This is actually a consistent approach of U.S. financial regulatory agencies. It may seem contradictory and inconsistent, but in reality, it is a subtle balancing act. The market demand for Bitcoin is growing, but its value, security, and usage methods are beyond the conventional scope of traditional financial regulation. What to do? Instead of suppressing it underground and allowing it to spread, it is better to put on a controllable shell and operate under the supervision of regulation. This shell is the ETF.

The SEC's decision also reflects its ongoing process of adapting and adjusting the regulatory framework to accommodate financial innovation. In this process, the SEC is trying to find a balance between promoting financial innovation and maintaining market stability and protecting investor rights.

This is an important step for Bitcoin to mature and enter the mainstream financial market. The SEC's decision not only officially stamps the legitimacy and security of Bitcoin but also opens a new gateway for a wide range of investors to the world of digital currencies.

From historical experience, when a new asset is included in an ETF, it usually brings broader market attention and capital inflow. For Bitcoin, the approval of Bitcoin ETFs may attract more interest and capital from traditional financial investors, driving up the price of Bitcoin. But why hasn't the price skyrocketed, to the moon?

The answer is actually on the surface of the mystery - the market has no money.Let's take a look back at the past decade or so of Bitcoin's meteoric rise. Starting with the emergence of Bitcoin in 2009, a significant backdrop has been the Federal Reserve's ultra-long quantitative easing cycle. Over the past decade or more, the Fed's printing press has been continuously injecting liquidity into the market. The US stock market has been bullish for 10 years, and Bitcoin has also skyrocketed for 10 years. After the pandemic began in 2020, the Fed opened the floodgates to the maximum, and as you can see, the price of the coin surged close to $70,000.

However, by 2023, in order to curb inflation, the Federal Reserve initiated a rate-hiking cycle. The price of the coin began to fall incessantly, once even probing as low as $15,000. The recent reason for the coin's price stagnation is also this - the Fed's rate-hiking cycle has not yet come to a complete end. There is still divergence in the market regarding whether there will be a rate cut this year. Without sufficient liquidity in the market, no matter how many channels are opened, prices cannot be lifted.

As a highly volatile asset, the price of Bitcoin will still be influenced by a variety of factors, including technological advancements, market sentiment, and regulatory policies.

In summary, the SEC's approval of a Bitcoin ETF is a major milestone in the digital currency field. It not only adds momentum to the long-term development of Bitcoin but also provides a more diverse and secure investment option for a wide range of investors. In the future, Bitcoin ETFs may become an important bridge connecting the traditional financial market with the digital currency world. However, just as ships at sea need to navigate carefully through winds and waves, investors should also exercise caution when investing in Bitcoin ETFs, fully assessing the risks and opportunities involved.

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