Market makers including Hudson (NYSE:HUD) River Trading, Jane Street, Virtu Financial (NASDAQ:VIRT), and Jump Trading are in discussions with BlackRock (NYSE:BLK) over the prospect of providing liquidity for its anticipated Bitcoin exchange-traded fund (ETF), contingent on regulatory approval. This engagement coincides with a wave of similar applications from major asset managers and Wall Street firms, signaling renewed institutional interest in the Bitcoin market.
The U.S. Securities and Exchange Commission's (SEC) decision not to contest a court criticism of its initial denial of Grayscale's bid to convert their Bitcoin Trust (GBTC) into a spot ETF suggests a potential shift towards acceptance of Bitcoin ETFs. This development has led market participants to anticipate an increase in institutional involvement and a potential reduction in Bitcoin's price volatility.
However, the crypto landscape has been marked by liquidity challenges. Prompted by events such as FTX's collapse in 2022, some firms have scaled back their crypto activities. Market makers are integral to ETFs as they create and redeem shares to keep the ETF's price aligned with its intrinsic value. The Grayscale Bitcoin Trust (GBTC) illustrates this, with its price deviating significantly from its underlying Bitcoin holdings due to a missing redemption mechanism.
Despite these challenges, institutional adoption remains a key catalyst for Bitcoin. Matrixport predicts that Bitcoin will reach a minimum of $42,000 following US spot ETF approvals. This forecast is further bolstered by JP Morgan's prediction of imminent approvals for spot Bitcoin ETFs in the US.
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