The recent approval of the first bitcoin exchange-traded fund (ETF) in the US has been hailed as a historic milestone for the cryptocurrency industry, but JPMorgan analysts are not convinced that it will have a significant impact on the market.
In a note to clients, the bank’s global markets strategy team said that the bitcoin ETF, which tracks the performance of bitcoin futures contracts rather than the spot price of bitcoin, is unlikely to be a “game changer” for several reasons.
First, they argued that the bitcoin futures market is already well developed and liquid, with an average daily volume of about $5 billion in September, compared to $1.6 billion for the spot market. Therefore, the ETF does not offer much additional exposure or convenience for investors who want to gain exposure to bitcoin.
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Second, they pointed out that the bitcoin futures contracts have a negative roll yield, meaning that investors have to pay a premium to roll over their contracts as they expire. This creates a drag on the performance of the ETF, which could discourage long-term investors from holding it. The analysts estimated that the annualized cost of rolling over the futures contracts could be as high as 10% for the ETF.
Third, they suggested that the bitcoin ETF could face competition from other products that offer exposure to the spot price of bitcoin, such as Grayscale Bitcoin Trust (GBTC) or exchange-traded notes (ETNs). These products could have lower fees and more tax advantages than the ETF, which could attract more investors.
The analysts concluded that while the bitcoin ETF approval is a positive development for the cryptocurrency industry, it is unlikely to have a major impact on the demand and supply dynamics of bitcoin. They said that the main drivers of bitcoin’s price are still macroeconomic factors, such as inflation expectations, risk appetite, and regulatory developments.
