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Jan 12, 2024
Thought-Leadership
HOAX or NoT! What Bitcoin ETF Approval Means for DeFi
by Orderly Network

We all saw it, then we didn’t. A hoax, a trick, or just the SEC rocking a $900 billion+ market cap asset, not to mention the $71 billion + market cap of the DeFi industry.

It almost felt like getting that dreaded liquidation on that 100X leverage position on PEPE.

Picture this; The SEC makes a “now-deleted” X post confirming the approval of Bitcoin ETFs in all registered US Securities Exchanges, but the apex regulatory body swiftly issues a follow-up statement saying they got “compromised”.

Well don’t picture it, it did happen. Felt like a punch below the belt.

SEC's deleted X announcement

Source: X

During this short-lived excitement, Bitcoin prices went on a mini-journey – skyrocketing and then plummeting faster than you can say "blockchain."

Bitcoin's initial price movement after SEC's X post

Source: YahooFinance

Reports now confirm the approval of “some” spot Bitcoin ETFs including Greyscale’s GBTC and BlackRock’s iShares Bitcoin ETF (IBIT), and the crypto market is responding superbly. Even though the intial skepticism was high as a Bitcoin enthusiast at a blockchain conference, there’s chatter in some corners of X and reddit forums of the bull run being in full effect.

True or not, and as we all watch the markets closely before jumping in again (or not), let’s run through what Bitcoin ETF approval really means for;

  • The Broader DeFi Ecosystem
  • DeFi Traders and Trading Liquidity
  • Bridging the Gap Between TradFi & DeFi

Bitcoin ETF Impact on the Broader DeFi Ecosystem

Legitimization and Mainstream Adoption:

The approval of Bitcoin ETFs serves as a significant validation of Bitcoin as an institutional-grade investment. It is like giving Bitcoin a golden ticket to the big leagues. It’s not just a win for Bitcoin; it's a thumbs up for the whole crypto economy, potentially ushering in a new era of mainstream acceptance. This could enhance its legitimacy and solidify its place in the financial landscape, potentially leading to increased mainstream adoption of not just Bitcoin, but also other cryptocurrencies and DeFi products.

Influence on Altcoins and DeFi Projects: The price of Bitcoin often correlates with other cryptocurrencies. As Bitcoin gains more mainstream recognition through an ETF, there might be an acceleration in activities related to altcoins, DeFi, and Web3 assets, as well as companies operating within these industries.

Bitcoin's mood swings tend to affect the entire crypto neighborhood. If Bitcoin gets a nod in TradFi, expect a domino effect – more action in altcoins, DeFi, and even Web3 startups.

First day trading volumes for the combined approved ETFs already reached an impressive $4.5B as investors hopped in on the product, leading to Bitcoin soaring to it’s highest price point since December 2021. This leap saw close competitor ETH soar 1.26% and other altcoins like Avalanche, Polkadot, Cardano go upwards of 3% according to this report.

https://x.com/JSeyff/status/1745553105901474213?s=20

Bitcoin ETF Impact on DeFi Traders and Trading Liquidity

Increased Liquidity and Investment Inflows: The introduction of Bitcoin ETFs could attract significant institutional and retail investment into Bitcoin. This influx of capital might take liquidity in the Bitcoin market to new highs, which could indirectly benefit DeFi platforms and tokens associated with them.

Suppose a large mutual fund, previously hesitant about direct cryptocurrency exposure, decides to include the Bitcoin ETF in its portfolio. This move could be mirrored by other traditional investment funds, resulting in a significant influx of new investors into the Bitcoin market. The legitimacy conferred by these mainstream financial players could lead to a domino effect, where other cryptocurrencies and DeFi projects are also considered more viable by traditional investors.

Coupled with recent developments in scaling the Bitcoin Network and a perceived expectation for improved DeFi activities, we just might be on the verge of another bull run.

Risk Management and Diversification: Bitcoin ETFs offer a regulated and potentially less volatile means of Bitcoin exposure for traders. DeFi traders might use these ETFs as a way to diversify their investments and manage risks associated with direct cryptocurrency holdings. It could be like the cool, collected cousin of direct cryptocurrency trading. For DeFi traders, this means a new way to spread their bets and play it a bit safer.

The heightened media attention from Bitcoin ETF approval could spill over to the broader crypto market, particularly altcoins and DeFi projects, as new investors seek to diversify their portfolios. For instance, a surge in Bitcoin's price and popularity might prompt investors to explore Ethereum, leading to increased investment in DeFi projects built on other blockchains.

Bitcoin ETF Implications in Bridging TradFi & DeFi

Access to Traditional Investment Avenues: Bitcoin ETFs could open up Bitcoin investments to traditional investment funds in the US, such as IRAs, 401ks, and pensions. This would bridge the gap between traditional finance and the crypto world, making Bitcoin and possibly other cryptocurrencies more accessible to a broader range of investors.

Increased Institutional Participation: The advent of Bitcoin ETFs may attract more traditional financial institutions and banks to actively participate in the digital asset industry, thus further intertwining the worlds of TradFi and DeFi. Bitcoin ETFs might just be the VIP pass for the big traditional financial players to enter the crypto party, bringing TradFi and DeFi closer than ever.

https://x.com/EricBalchunas/status/1745577782183108657?s=20

Enhanced Regulatory Framework: The approval and successful operation of Bitcoin ETFs could lead to a more robust regulatory framework for cryptocurrencies and DeFi products, potentially increasing investor confidence and further merging the traditional and decentralized finance sectors. Paving the way for comprehensive, more reassuring regulations around cryptocurrencies and DeFi certainly makes everyone sleep a bit easier at night.

Hoax or Not, the Bitcoin ETF story currently feels like a cliffhanger in a crypto thriller and perhaps the most exciting bit is just how much this approval can bridge TradFi to DeFi. Orderly-powered orderbook DEXes – like WOOFi Pro – already create a familiar environment for a smooth transition for traders from TradFi to DeFi, alongside a permissionless liquidity layer for Web3 trading.

So, while the SEC has scored some degen points with these approvals, the crypto world awaits with bated breath what more is to come. But one thing's for sure - the journey's going to be anything but boring; the inevitable evolution and decentralization of finance!

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