Why Spot Bitcoin ETFs May Have Sparked a New Bear Market

The recent approval of spot Bitcoin ETFs (exchange-traded funds) by the US Securities and Exchange Commission (SEC) has sparked intense debate.

Overshadowed by concerns about centralization and market volatility, this critical step raises a big question mark. Could this be the catalyst for a new winter in the cryptocurrency market?

ETFs are against the principles of Bitcoin

SEC Chairman Gary Gensler takes a humorous look at the approval of spot Bitcoin ETFs. Such financial products contradict the principles of Bitcoin, which centralize the digital asset. Gensler warned that the move could lead to more speculation and volatility in an already volatile market.

He emphasized that bitcoin remains a highly speculative asset, often associated with illegal activities such as money laundering and ransomware.

“Satoshi Nakamoto said this will be a decentralized system. Think of the irony of those who say this week is historic. This was about centralization and traditional ways of finance. Investors used to be able to express their opinion in Bitcoin… but now they can buy it in this so-called exchange-traded product and centrally.” Gensler said.

Similarly, prominent investor Kevin O'Leary expressed his skepticism about the spot Bitcoin ETF. He questioned the value added for long-term investors who, like him, view bitcoin as digital gold. O'Leary's position highlights the high fees and lack of direct ownership of these ETFs. These features may not appeal to purists who prefer direct Bitcoin holdings.

Read more: This is how to invest in Spot Bitcoin ETFs.

Mr Dunful predicted that few of the newly approved ETFs would survive, with major players such as BlackRock and Fidelity likely to dominate due to their vast resources.

“If you're a purist and like me holding bitcoin as digital gold for a long time, I would never buy an ETF. Why do I pay these fees? It's completely unnecessary, and they don't add any value to me,” O'Leary said.

These statements set the stage for a critical examination of the potential impact of these ETFs on mainstream cryptocurrency.

BTC as an exchange medium

Bitcoin's original purpose as a medium for small online transactions has been overshadowed by its efficiency – high costs and cumbersome payment processes. Acceptance remains limited for larger transactions. Meanwhile, its use as a currency for secrecy and illegal activities raises questions.

Even BlackRock CEO Larry Fink expressed his skepticism about Bitcoin replacing traditional currencies. “I don't believe it will ever be a currency. I believe it's an asset class,” he explained. Meanwhile, Kristalina Georgieva, managing director of the International Monetary Fund, said cryptocurrencies like bitcoin should not be considered “money” in the conventional sense.

“Our view is that we need to distinguish between money and assets. When we talk about crypto, we're really talking about an asset class. It can be backed up and thus, more secure and less risky, or it can be unbacked and therefore a riskier investment. But it's not exactly money.” .It's like a money management fund,” Georgieva said.

The introduction of Bitcoin ETFs moves cryptocurrency further away from its supposed decentralized ethos, connecting it to traditional financial systems. Bitcoin shows a higher correlation with more speculative sectors than with traditional stores like gold.

During financial crises, like the bank March 2023 and the March 2020 pandemic threat, Bitcoin has been anything but stable. It has shown high volatility and price reductions, contradicting its role as a digital safe haven.

History points to the high point of the market

According to a technical analyst named CryptoCon, the launch of spot bitcoin ETFs could signal a new bear market. This pattern reflects the analyst's statement by fixing major crypto events and critical market shifts.

“To say there is no connection between Bitcoin and news events would be disingenuous,” said CryptoCon.

It bears similarities to past events such as the launch of CME's Bitcoin Futures contract in December 2017 and the Coinbase IPO in April 2021, both coinciding with market precedents. Similarly, FTX's fall in November 2022 and Silicon Valley Bank's March 2023 market lows followed.

A recent position similar to these events could signal a market shift for Bitcoin ETFs.

Historically, the cryptocurrency market has shown high sensitivity to such significant developments. This sensitivity often results in sudden market movements. Therefore, introducing a spot Bitcoin ETF can be a sign of prudent trading strategies.