Kyle Waters and Tanay Ved from Coin Metrics noted that digital assets rebounded sharply in 2023 as market conditions “improved across the board and institutional interest accelerated alongside the impending launch of a spot Bitcoin ETF.”
Looking to 2024, there are a number of important developments on the horizon, according to Coin Metrics.
The report from Coin Metrics noted that after a decade-long effort, the final steps “to introduce a spot Bitcoin ETF to the US financial markets are underway, with products likely launching from a number of high-profile issuers like BlackRock and Fidelity Investments in 2024.”
The long-awaited approval of spot ETFs “carries many implications that could shape the digital assets market for years to come.”
As the industry anticipates the SEC‘s decision on the ARK & 21Shares Bitcoin ETF, the issuer with the earliest final deadline of January 10th, “the latest amended SEC filings from issuers appear to signal an impending green light from the SEC at the time of our writing.”
However, the Coin Metrics report pointed out that the specifics “regarding the initial wave of approvals and the exact launch date remain uncertain. It’s widely expected that the SEC will simultaneously approve multiple issuers to avoid perceived favoritism, as observed in the Ethereum futures ETF launch last fall.”
Currently, there “are 11 major spot ETF filers that are prepared for a potential approval in the coming week.”
The Coin Metrics report added that there “are many different aspects to the launch such as the estimated magnitude of inflows to the ETFs, the competitive dynamics between ETF issuers, and Bitcoin’s maturing market structure. Some issuers have already begun a marketing push, while other issuers look to compete on having the lowest fees.”
Coin Metrics says it believes it’s also important “to consider Bitcoin’s on-chain supply dynamics, which may evolve in the medium term, and where Coin Metrics’ data can help shed the most light. Bitcoin’s supply, easily auditable and trackable on-chain, helps make it a unique financial asset. Anyone who runs a Bitcoin node can trace the whereabouts of all BTC and follow coins as they move.”
This allows us to “deduce holder behavior, the dispersion of supply, active addresses, and many other on-chain metrics that would be impossible to compute for a more opaque asset. An important trend running parallel to ETF talks is an increasing percentage of bitcoin being held by long-term holders.”
The Coin Metrics report also mentioned that “over 6 million BTC, or 30% of the total supply today, hasn’t moved in over five years.”
Coin Metrics considers this dormant BTC “as excluded from Bitcoin’s ‘free float’ supply.”
Moreover, only 30% of all BTC was “active on-chain in 2023, with the majority remaining untouched.”
Although it is important “not to oversimplify the determinants of BTC’s price, a dynamic variable impacted by many unknowns, this growing illiquidity mixed with outsized inflows into the ETF could squeeze the market, thereby encouraging more supply to enter the liquid market.”
Many other factors will be interesting to watch, the report added while noting that counteracting forces “will shake up the onshore crypto exchange landscape, with an ETF possibly enticing buyers away from spot exchanges through lower fees and less frictions.”
But at the same time, Coin Metrics says that “exchanges like Coinbase are set to gain as an ETF custodian (Coinbase is the named custodian in 8 of the 11 major filings including BlackRock’s iShares Bitcoin Trust).”
More broadly, the ETF is expected “to enhance and affirm the legitimacy of digital assets, likely benefiting US exchanges down the road as the industry continues to mature. Average spot volume on Coinbase has already jumped above $2B per day on the back of improving market sentiment revolving around the ETF.”
Meanwhile, the jump in CME Bitcoin futures open interest is “reflective of a shifting market structure focused on the US financial markets.”
With such a transformative development on the horizon, this year “may mark the transition of digital assets from a niche to an emerging asset class.”
With BlackRock and others also filing for an Ethereum spot ETF, the potential approval of an ETH product will also “be on industry participants’ minds in 2024. But BTC is set to go first in a year coinciding with another big supply event ready to dominate Bitcoin’s narrative in 2024: the next Bitcoin halving.”
The Coin Metrics team concluded in their extensive report that the digital assets market is poised “for maturation in 2024.”
The anticipated launch of a spot ETF stands “as a milestone in Bitcoin’s relatively brief but impactful history, a mere 15 years ago today since its genesis block was mined, unleashing a new concept of money upon the world.”