Galaxy Digital, a prominent investment firm, has recently released a research report projecting a potential Bitcoin (BTC) rally of 74% in the year following the approval of a spot BTC ETF.
Galaxy’s projection comes amid the sustained discussions surrounding a spot BTC ETF. Alex Thorn, the Head of Firmwide Research at Galaxy Digital, recently shared a summarized version of the research paper on X.
when #bitcoin ETFs are approved, we think these vehicles could see a minimum of $14.4bn of inflows in year 1, ramping to $38.6bn inflows in year 3.
at those levels, BTCUSD could see 75% appreciation the year following approvals 👀
more in our new report from today👇 pic.twitter.com/xnA0XpivUp
— Alex Thorn (@intangiblecoins) October 24, 2023
The paper suggests that upon the approval of a spot-based BTC ETF, an influx of substantial capital could flood the market.
In the first year alone, Galaxy Digital expects this influx to reach a minimum of $14.4 billion, eventually surging to a staggering $38.6 billion in the third year. Such substantial capital injections could have a profound effect on the value of Bitcoin.
Basis of the Projection
Galaxy Digital‘s argument centers around the potential impact of this new investment vehicle on the cryptocurrency market. They anticipate that BTC could witness a remarkable 74% appreciation in the year immediately following ETF approvals.
The substantial inflows into the market could drive this price increase. Portfolio managers, especially banks, broker-dealers, and RIAs, are poised to become the biggest beneficiaries of a spot BTC ETF. In the U.S., these segments collectively manage $47 trillion, data from the report shows.
The research employs a conservative adoption rate, assuming that 10% of AUMs will pump 1% into Bitcoin. This assumption remains constant over the three-year analysis period, providing a steady foundation for their projections.
Assessing the impact of such inflows on Bitcoin’s spot prices is complex, as it depends on multiple factors, such as liquidity and timing.
The research paper compares BTC with the gold market, which is approximately 24 times larger than the Bitcoin market and holds 36% less supply in investment products. Using this comparison, they estimate that fund inflows into Bitcoin could have a significantly greater impact, around 8.8 times more than gold.
An Estimated 74% for Bitcoin
Applying their year-one estimate of $14.4 billion in inflows, Galaxy Digital anticipates a 6.2% price impact for Bitcoin in the first month. However, as time progresses and Bitcoin’s market cap changes relative to gold, this impact would gradually decrease.
The estimated monthly returns could decline from +6.2% in the first month of the first year to +3.7% in the last month. This analysis results in an estimate of a 74% increase in Bitcoin’s value within the first year of approving a spot ETF.
Notably, Bitcoin trades at $34,363 at the reporting time. To put this into perspective, assuming a starting Bitcoin price around its current price range, a 74% increase would propel the price to approximately $59,160.
Thorn stressed that these projections are not definitive, as the approval of ETFs and the timing of such approvals remain uncertain. In addition, the degree of fund influx and AUM allocations, the vital aspects of this price projection, remain highly uncertain.
Researchers at Galaxy Digital are not the only ones bullish on BTC in the wake of a spot ETF approval. CNBC’s Head of Research, Tom Lee, predicted BTC to hit $150,000 following the approval.