Happy Friday everyone. 🤝 

Last week, we talked about how the approval of a spot Bitcoin ETF in the US was likely imminent. As a reminder, a spot Bitcoin ETF is an exchange-traded fund that tracks the price of Bitcoin very closely. (For a more detailed explanation, see last week's newsletter).

Why is yours truly going on about a US-listed spot Bitcoin ETF? Because the world's largest capital market, the United States, still lacks the most efficient market access vehicle for Bitcoin - a spot Bitcoin ETF. 🤯 

So the implications are huge. This week, we’ll explore the potential impact of a spot Bitcoin ETF on the price of Bitcoin. 💪 

Bear in mind that it's rare for a new asset class to enter the ETF market. This makes it difficult to gauge how much demand there will be for it. So take price predictions with a pinch of salt. They are nothing more than informed guesses. ☝️ 

But let's take a look at one of the more popular informed guesses.

1. The analogy with gold

The first is the analogy with gold. The reasoning here is that until the advent of a spot gold ETF, gold was a specialist market, inaccessible to non-experts and much of the wealth management industry.

That all changed in 2004 when the US approved its first spot gold ETF. (Fun fact for my Aussie readers: The world's first spot gold ETF was actually listed Down Under in 2003! 🇦🇺)

The chart below shows the price of gold in US$ per ounce. As you can see, between the launch of the first spot gold ETF in 2004 and 2011, the price of gold rose by 346%. Many people apply the same logic to Bitcoin, arguing that its price will rise by a similar margin over the next few years once the spot Bitcoin ETF is approved.

Yours truly thinks that while this informed guess gives you an idea of what happens when a specialist market goes mainstream, the forecast might be a bit too simplistic.

So let's look at another approach. 👇️ 

2. ‘Sizing the Market for a Bitcoin ETF’

The folks at digital asset investment firm Galaxy published a research paper in October called ‘Sizing the Market for a Bitcoin ETF’. What Galaxy is trying to do in this report is estimate how much money will flow into Bitcoin by looking at the total addressable market for the spot Bitcoin ETF. In Galaxy's eyes, the total addressable market is the US wealth management industry.

According to Galaxy, the total size of the US wealth management industry is US$48.3 trillion. As a next step, Galaxy estimates how much money will flow into a spot Bitcoin ETF through the various channels of the wealth management industry, namely banks, broker-dealers, and registered investment advisors.

Their conclusion: They estimate the addressable market size of a US Bitcoin ETF to be around US$14 trillion in the first year after the ETF launch. This translates into an estimated 74% increase in the price of Bitcoin in the first year after an ETF is approved.

It's worth noting that Galaxy believes their estimate is conservative and that the spot Bitcoin ETF is likely to have a much bigger impact on the price of Bitcoin through second-order effects. By this, they mean that other markets are likely to follow the US in approving and offering Bitcoin ETF products to a wider range of institutions and people (read about the global race for a spot Bitcoin ETF here).

Yours truly thinks Galaxy's analysis is good food for thought and a more sophisticated way of thinking about what might happen to the price of Bitcoin post-ETF.

Before we close, remember that the above estimate is based on inflows from the US wealth management industry. But the price of Bitcoin will also be affected by other factors, such as:

• Inflation. If inflation and the cost of living crisis persist, this could have a negative impact on the price of Bitcoin.

• The interest rate environment. If interest rates start to fall in the first half of 2024, this could lead to a lot of money flowing into Bitcoin. On the other hand, higher interest rates for longer could dampen investor enthusiasm.

• The halving. The next halving will occur in April 2024. It will lead to a supply shock as the number of new Bitcoins entering the network decreases. Historically, the halving has proven to be a very bullish event.

Don't worry, for those of you who have no idea what the halving is, yours truly will cover it in next week's newsletter. 🤜 🤛 

Have a great weekend! 🥳 

Before you go, please help me get better:

Feel free to drop me an email or dm me on Instagram, LinkedIn, or Twitter with any feedback or topics you'd like to see covered in this newsletter!

Thank you! 🙏