The cryptocurrency market sentiment has turned bullish with the potential of a spot Bitcoin ETF (exchange-traded fund). While appealing, this innovative financial product comes with a suite of risks that investors must carefully consider.
BlackRock, the world’s largest asset manager, has highlighted several crucial risk factors that spot Bitcoin ETFs pose.
The Risks Spot Bitcoin ETFs Pose
Extreme volatility stands as the foremost concern. Cryptocurrencies, notably Bitcoin, have historically experienced dramatic price fluctuations. This pattern of parabolic uptrends followed by rapid declines has been a recurring theme. For instance, this was evident in 2011, 2013-2014, 2017-2018, and 2021-2022.
Such unpredictable volatility directly impacts the potential value of spot Bitcoin ETF shares, posing a risk of substantial losses.
“There is no assurance that Bitcoin will maintain its value in the long, intermediate, short, or any other term. In the event that the price of Bitcoin declines, the [BlackRock] expects the value of the Shares to decline proportionately,” the registration statement reads.
Recent market events have further compounded these risks. The bankruptcy of key players like Celsius Network, Voyager Digital, and Three Arrows Capital, along with the collapse of FTX in November 2022, significantly disturbed the market. These developments triggered extreme price volatility and eroded confidence in the stability and liquidity of the crypto market.
Read more: How To Prepare for a Bitcoin ETF: A Step-by-Step Approach
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Author: Bary Rahma
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