Spot Market Bitcoin ETF Chain Reaction How TradFi is affecting the crypto industry

By Matan Doyich, CoinDesk; Compiled: Pine Snow, Golden Finance

It is expected that the launch of the spot market Bitcoin ETF (exchange-traded fund) by the end of the year, or the spot market Bitcoin ETF is close to certainty. After years of legal battles, the U.S. Securities and Exchange Commission (SEC) has missed the time to file its application with a U.S. Court of Appeals, which recently harshly criticized the securities regulator for rejecting an apparently biased decision that was substantially similar to a spot market product when approving futures-based ETFs.

Although these financial funds traded on the stock market are already traded in Canada and Europe, the spot market Bitcoin ETF is the holy grail of the cryptocurrency industry. The reason is almost entirely related to the SEC's rejection of dozens of applications seen so far, making it unaffordable for U.S. investors seeking to invest in bitcoin but not buying it outright.

For example, Grayscale's application for a spot Bitcoin ETF in October 2021 and rejected by the U.S. Securities and Exchange Commission (SEC) in June 2022 made headlines far less often than the August ruling by a panel of three judges on the U.S. Court of Appeals that regulators were "wrong." News of the court's ruling caused an uproar in the cryptocurrency and financial worlds as it could have some implications for BlackRock's recently filed spot Bitcoin ETF.

When people read headlines such as "BlackRock: The Secret Company That Owns the World," it's no surprise that Bitcoin prices rose 20% in 11 days after the announcement by the world's largest asset manager. The initial rally sparked optimistic enthusiasm for the bull market ahead.

Although BlackRock has a track record of 99.8% ETF approvals, it is unclear how the SEC will rule on this, given that it has not previously approved any Bitcoin ETFs and is actively targeting major cryptocurrency exchanges in the United States.

Still, Bitcoin's association with BlackRock has given some bitcoin and cryptocurrency maximists enough optimism, while others worry that centralized entities will generate too much power in the space.

The complex relationship between TradFi (traditional finance) and Bitcoin

Considering that BlackRock's Bitcoin ETF appears to be backed by actual Bitcoin, requiring asset managers to buy as much Bitcoin as the ETF they sell, it is clear that this will push up the price of cryptocurrencies. On the surface, however, institutional interest in Bitcoin and cryptocurrencies is nothing new. After the Winklevoss brothers submitted their first Bitcoin ETF in 2013, several major financial institutions, including UBS, Citi, Barclays, and others, showed interest in cryptocurrencies and blockchain. And all this was before the 2017 bull market.

Since then, institutions of all sizes have continued to explore offering cryptocurrency services for their product listings. An entire ecosystem project dedicated to providing institutions with a secure infrastructure that enables them to provide services like decentralized finance (DeFi) services and tokenized assets has emerged.

For example, GK8, owned by Galaxy, allows institutions to offer a range of digital asset services through its trusted hosting platform and flagship product, Cold Vault. These projects that bring institutions to the forefront of cryptocurrencies have helped banks and investment firms find new revenue streams while expanding cryptocurrency adoption.

The transparency and speed of transactions has prompted banks to collaborate within industry consortia to develop a universal blockchain platform to facilitate a faster and smoother flow of funds. JPMorgan Chase has also been building a private blockchain network for years and now plans to release its own crypto wallet.

As TradFi (the traditional financial sector) becomes more involved in cryptocurrencies and the use of blockchain and other crypto-related technologies increases, this begs the question: What impact will the approval of BlackRock ETFs really have beyond raising Bitcoin's price trajectory?

Crypto whale

For optimists, SEC approval of BlackRock's ETF will legitimize not only Bitcoin, but the crypto industry as a whole. This belief is almost indisputable. With an unprecedented $9 trillion in assets under management and 70 offices in 30 countries, BlackRock acts as a bridge between Bitcoin and immeasurable wealth.

When the world's largest and most prestigious asset managers show interest in a particular asset or asset class, global investors take notice.

The pending regulatory clarity in the U.S. could also reinforce this zeitgeist of Bitcoin's normalization. More institutional participation could increase the competitiveness of traditional financial institutions in offering crypto products and inject capital into the crypto market, leading to higher prices and liquidity.

But rising prices don't necessarily mean the long-term sustainability of cryptocurrencies. Over the past six years, we have witnessed several bull market cycles and huge price swings. There is also no guarantee that an increase in the price of Bitcoin will translate into an overall increase in the price of cryptocurrencies.

Decentralized purists have reason to feel threatened by the expanding role of TradFi (the traditional financial sector) in the space they originally built. For them, big asset managers and investment banks represent ideological enemies who fear it will exert disproportionate influence or, worse, completely devour crypto-native companies, and the acquisition of TradFi (traditional finance) whales could wipe out all the progress made in crypto and DeFi over the past few years.

If the US and EU adopt a Bitcoin ETF and a balanced regulatory approach, cryptocurrencies (mostly DeFi) and TradFi (traditional financial sector) can coexist as they serve different groups of people through different services and products.

In addition to applying innovative financial solutions to digital and real-world assets, cryptocurrency companies can expand adoption by providing financial services to underserved populations, mainly in developing countries, as companies such as BlackRock, Fidelity, and VanEck have technological advantages in the financial sector.

In addition, major institutions can facilitate access to DeFi products such as staking, lending, and lending for investors who are less familiar with the technical hurdles required to participate directly in cryptocurrencies.

Not so long ago, TradFi (the traditional financial sector) was threatened by the emerging cryptocurrency industry. This has reversed with regulatory uncertainty, potential Bitcoin ETFs, and more interest from TradFi, the traditional financial sector.

But by leveraging their strengths, TradFi (the traditional financial sector) and crypto-native companies can help build a stronger crypto ecosystem capable of driving mass adoption of cryptocurrencies, regardless of whether the SEC approves the proposed ETF.