Bitcoin ETFs Spark Market Division - A Potential Boom for Altcoins on the Horizon
Summary:
The advent of exchange-traded funds (ETFs) for spot Bitcoin (BTC) has caused a sharp division in the cryptocurrency market, setting the stage for a significant reallocation of investments. As Bitcoin is added to common investor portfolios, long-term Bitcoin investors are expected to seek more decentralized alternatives, leading to what could be a breakout growth for altcoins. Despite any potential shift in retail investment, institutions are expected to continue to profit.
The introduction of exchange-traded funds (ETFs) for spot Bitcoin (BTC) has shaken up everything, not solely for institutional investors but also for retail cryptocurrency investors. This development is causing a sharp divide in the market and setting the stage for a significant adjustment in the balance of investments. On one side are regular investors who are getting their first taste of Bitcoin through their advisors, who are investing in spot BTC ETFs. The inclusion of Bitcoin in these portfolios is just the beginning and will eventually be as widespread as gold holdings. But there is a counterpoint to this, the cryptocurrency veterans - those rooted in the inception of the digital currency world and staunch supporters of Web3. Their investment in Bitcoin stems from its decentralization and censorship resistance values.
However, when every investor jumps on the Bitcoin bandwagon, those early birds lose their pioneering advantage, sparking an uprising. From the perspective of long-time Bitcoin investors, the crypto giant asset has significantly strayed from its intended goal of replacing the flawed existing payment system. Instead, it has ironically become an integral part of the system it aimed to dismantle. It's akin to finding a hidden treasure in a local restaurant, only to watch it become a corporate franchise, losing its authentic charm and making securing a table challenging.
But the concern isn't solely about Bitcoin's purpose. As the battle for the finite supply of Bitcoin intensifies, the price of Bitcoin is bound to skyrocket, benefitting primarily the heavy hitters. Even the small 25 basis points they earn from managing BTC spot ETFs can generate billions. Undoubtedly, the crypto-friendly retail investors can still directly purchase Bitcoin through crypto exchanges, but giving the lion's share of profits to the world's top asset managers completely contradicts the purpose of Web3.
The market trend is clearly dividing between regular investors willing to pay the premium for a ticket on the Bitcoin express, and those accustomed to a free ride. The latter group won't wait to evaluate if the journey is worth the cost; they'll simply look for a more authentic crypto market that offers direct access to blockchain without middlemen. This divergence will spur the much-awaited altcoin season.
So far, altcoins have underperformed Bitcoin, which is typical in this phase of the cycle. However, indicators of a reversal are emerging. For instance, Ethereum (ETH) has displayed a rising trajectory against Bitcoin over the past ten weeks or so, suggesting a possible breakout in the coming weeks. When this occurs, altcoins will naturally follow suit, driven largely by Bitcoin investors seeking other options.
The increased institutional investment in Bitcoin and its soaring popularity among traditional investors will further polarize the retail crypto market. As money is redirected into altcoins, several will emerge as "too big to fail," a level mostly reserved for Bitcoin until now. This cycle will be crucial in filtering out the unsustainable altcoins and identifying the ones that can survive into another bull market.
However, this doesn't imply that every crypto-savvy retail investor will turn their back on Bitcoin. Investing in altcoins requires a higher risk tolerance than most possess. Bitcoin will remain a stabilizer for many, a reliable and less volatile asset offering a cushion for higher-risk investments. As Bitcoin continues to grow, some of its most loyal supporters might depart, seeking more decentralized alternatives and greater profits. Still, regardless of how this reconfiguration unfolds, the certainty is that institutions will capitalize either way. Even a major retail departure would have a minimal impact on BTC's price trajectory, taken care of by scarcity, increasing demand, and billions pouring in from institutions.
However, it will have a substantial impact on the future of the decentralized finance (DeFi) market. Currently, with only slightly over $100 billion in total value locked (TVL), compared to Bitcoin's swelling $1.4 trillion market capitalization, even a small shift into altcoins could significantly spur DeFi's growth. If ardent Bitcoin supporters devote the same enthusiasm to altcoins, the growth in altcoins could be astronomical. So, brace yourself, whatever your position in this exciting scenario; the ensuing season promises exhilarating experiences.
Lucas Kiely, the guest author and chief investment officer for Yield App, is in charge of allocating investment portfolios and expanding a diversified range of investment products. He was the former chief investment officer at Diginex Asset Management and held senior positions at Credit Suisse in Hong Kong, dealing with QIS and Structured Derivatives trading, and at UBS in Australia, heading exotic derivatives operations.
His views expressed here represent his opinions and do not necessarily reflect those of Cointelegraph. This article is for informational purposes only and is neither intended nor should be considered legal or investment advice.
Published At
3/18/2024 10:22:04 PM
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