SEC approval of bitcoin and ETFs to be major catalysts in second semester

Since the big correction in May, investors in the cryptocurrency market have decided to hold on to any negative bitcoin news to unleash a new wave of sales in the world's largest digital currency. It is of little use that the support of institutional investors and governments such as El Salvador is increasing, which predicts a promising future for the creation of Satoshi Nakamoto, according to many analysts. On the other hand, vetos, regulations or if Elon Musk wakes up with the wrong foot, are reasons for panic.

The breakout of the $ 30,000 support, which he drew a six-month low on the charts, while brief, is a good sign that the bearish trends are still in control. Despite the fact that the money began to enter decisively, there are no catalysts in the short term that justify a sustained rise, at least in the immediate future.

Looking ahead to the second half of 2021, however, some events may mark a turning point in the path of the queen of cryptocurrencies and Ether, the native unit of the Ethereum network. On the one hand, the already recurring issue of the approval of bitcoin exchange-traded funds in the US, which has been postponed to July, following the latest decision of the Securities and Exchange Commission (SEC), the US securities agency. On the other, two important technical implementations on the blockchain and Ethereum also have great potential to move prices.

ETFS

Requests for exchange-traded funds pile up on the table of the US markets supervisor, as investors look to Canada, which authorized its first bitcoin ETF in February, and a few more in the weeks that followed. The first and largest, Purpose Bitcoin ETF, racked up $ 1.2 billion in assets under management in April, just two months after it went public.

Illustrious names such as Fidelity Investments, VanEck, WisdomTree Investments (WETF), SkyBridge Capital, Valkyrie Digital Assets and NYDIG Asset Management await the verdict from the SEC, which continues to delay its decision. The most recent postponement was suffered by VanEck, who must now wait until July. The concern for the protection of investors is the main reason given by the agency.

Expectations couldn't be higher. "It seems like a question of when - not whether - the SEC will approve a bitcoin ETF," Todd Rosenbluth, CFRA head of research, said recently. The approval, when it comes, “will mark a more important moment than Elon Musk's purchase of $ 1.5 billion in bitcoins for Tesla's corporate treasury, more significant than the fact that PayPal allows its users to buy, sell and hold cryptocurrencies, and higher than Coinbase's IPO, ”explains Nik Bhatia, associate professor of finance and business economics at the University of Southern California.

BITCOIN AND ETHEREUM UPDATES

The modernization of the two most important networks in this market is another great milestone that is eagerly awaited. The first to implement changes will be Ethereum, which in mid-summer, between July and August, will undertake a major update known as 'EIP1559'. "Under this cryptic name we find a series of modifications that will presumably affect the price of the ether cryptocurrency," explain Álvaro León and Luis Ruiz de Onyze, in a collaboration with Bolsamania. The keys to the modernization of the network will reside in the changes at the rate level and in the burning of Ethereum transactions.

Later, between the end of this year and the beginning of the next, Ethereum 2.0 will launch, the imminent change of the Proof of Work (POW) protocol - the resolution of mathematical problems to maintain the network - to the Proof of Stake (POS for its acronym in English) -based on criteria such as amount of currency and time in the network- as a consensus mechanism. The POS is more environmentally friendly and sustainable.

Meanwhile, bitcoin will maintain the POW protocol, whose mining is much more polluting and remains in the eye of the hurricane due to the carbon footprint it leaves. However, it will also roll out a series of enhancements in November, under the codename 'Taproot'.

There are two main novelties: "An increase in privacy that will make simple transactions indistinguishable from those involving several firms," ​​said experts from Onyze. In addition, "the massive incorporation of‘ smart contracts ’, one of the network’s greatest attractions of Ethereum and that will now make bitcoin more attractive to the DeFi world (decentralized finance) "they added.

Of all the aforementioned, "what I think will have the greatest interest and impact is undoubtedly the updates of the main assets with the highest market capitalization," says Ruiz. Regarding the transition to POS and the use of cleaner energy in mining, "it is not known for sure if it will be the catalyst that the market expects," he says, "but it will certainly be a great step towards greater adoption by of the institutions that until now have not yet taken the step, since many investment funds work with eco-friendly investments ".

Translated by Caoimhe Toman