Galaxy Research Predicts $14B Inflows in First Year of Bitcoin Spot ETF, Surging to $27B and $39B in Years Two and Three

Galaxy Research reports a seismic shift in the world of cryptocurrency. The anticipated launch of a Bitcoin spot ETF in the United States is projected to trigger a colossal wave of investment, with inflows predicted to surge. Galaxy Research’s analysis projects that these investments could reach an astounding $14 billion in the first year following the ETF’s launch, growing to $27 billion in the second year, and reaching a staggering $39 billion in the third year. This potential financial influx is expected to have a profound impact on the adoption of Bitcoin and the broader acceptance of cryptocurrencies as a legitimate asset class.

A Bitcoin ETF (Exchange-Traded Fund) holds significant promise for investors, offering a more ideal solution compared to existing investment vehicles. As of September 30, 2023, Bitcoin investment products, including ETPs (Exchange-Traded Products) and closed-end funds, collectively managed 842,000 Bitcoins, equivalent to approximately $21.7 billion. However, these products come with drawbacks, such as high fees, low liquidity, and tracking errors. Furthermore, they often remain inaccessible to a broad spectrum of investors, excluding a substantial portion of the wealth market.

An ETF can revolutionize the investment landscape by offering the following advantages:

  1. Greater Efficiency: ETFs generally come with lower fees compared to traditional investment options, offering cost-effective exposure to Bitcoin. Additionally, they provide enhanced liquidity and improved price tracking, making them an attractive choice.
  2. Convenience: A Bitcoin spot ETF offers a hassle-free way to access Bitcoin, catering to both retail and institutional investors. It eliminates the need for investors to manage Bitcoin directly, reducing administrative complexities.
  3. Regulatory Compliance: ETFs typically adhere to rigorous regulatory standards, ensuring robust compliance requirements regarding custody setups, surveillance, and bankruptcy protection. This not only enhances investor protection but also increases price transparency and market stability.

Why a Bitcoin ETF Will Matter

The potential impact of a Bitcoin spot ETF on Bitcoin adoption is twofold: expanded accessibility and greater acceptance.

Accessibility: The current array of Bitcoin investment funds predominantly targets wealth advisors and institutional platforms, limiting their reach. A Bitcoin ETF would provide a regulated, direct offering accessible to a broader investor population, including retail and affluent individuals. This would extend investment opportunities beyond traditional wealth management channels, opening new avenues for potential investors.

Acceptance: Formal recognition and validation from established financial brands filing Bitcoin ETF applications can bolster the legitimacy of Bitcoin as an asset class. This recognition can instill confidence among investors and contribute to broader acceptance and adoption of cryptocurrencies.

The impact of a Bitcoin spot ETF on the market is expected to be significant. The US wealth management industry represents the most accessible and direct market segment expected to benefit from an approved Bitcoin ETF. As of October 2023, broker-dealers, banks, and registered investment advisors (RIAs) collectively manage assets totaling $48.3 trillion, forming the baseline Total Addressable Market (TAM).

Based on this analysis, the estimated addressable market size of a U.S. Bitcoin ETF is projected to be approximately $14 trillion in the first year after launch, $26 trillion in the second year, and $39 trillion in the third year.

Considering market size estimates, and assuming Bitcoin is adopted by 10% of total available assets in each wealth channel with an average allocation of 1%, Galaxy Research projects approximately $14 billion in inflows into a Bitcoin ETF in the first year following its launch. This is expected to increase to $27 billion in the second year and reach $39 billion by the third year post-launch.

Comparing Bitcoin to the gold market, which holds a relatively smaller market capitalization and less supply held in investment vehicles, suggests that fund inflows into Bitcoin ETFs will have a more substantial impact. The estimated impact on Bitcoin’s price in the first month post-ETF approval is approximately +6.2%, with returns gradually decreasing to +3.7% by the end of the first year.

While the analysis primarily focuses on inflows into a US Bitcoin ETF product, the broader implications of its approval are immense. The launch of similar Bitcoin ETFs in global markets, along with the inclusion of Bitcoin in various investment strategies, is expected. The total addressable market for Bitcoin investment products could extend beyond $450 billion, potentially altering the monetary premium applied to other assets like real estate and precious metals.

The imminent approval of a Bitcoin spot ETF in the United States is poised to reshape the cryptocurrency landscape. Its potential to attract massive inflows and reach a diverse array of investors is a pivotal moment in the journey towards mainstream acceptance of Bitcoin and other cryptocurrencies. As anticipation mounts, 2024 holds the promise of being a transformative year for Bitcoin and the entire crypto industry, with significant potential for growth and adoption.

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