With the Bitcoin (BTC) halving event less than a year away, several financial giants have filed to create a Bitcoin Exchange Traded Fund (ETF) spot fund – a scenario last seen before the 2020-2021 bull market.

Institutional interest in the sector declined following the collapse of major crypto giants such as FTX during the prolonged crypto winter of 2022. Bitcoin and many other cryptocurrencies were largely sideways as several cryptocurrency exchanges came under regulatory scrutiny.

However, following the news that major financial institutions such as BlackRock, Fidelity, Valkyrie and others had applied to list a spot Bitcoin ETF, the price of BTC rose to over $30,000, once again encouraging investment in the cryptocurrency market.

Monthly Bitcoin price chart. Source: CoinMarketCap

While several institutional giants have filed applications for cash Bitcoin ETFs with the U.S. Securities and Exchange Commission (SEC) in the past, all have either withdrawn their applications or faced outright rejection by the regulator.

The SEC approved the first Bitcoin futures ETF in October 2021 – the ProShares Bitcoin Strategy ETF – which debuted on the Fresh York Stock Exchange on October 19, 2021.

However, the filing of a spot Bitcoin ETF by asset management giant BlackRock has increased the chances of SEC approval of the first spot Bitcoin ETF. That’s according to Bloomberg senior ETF analyst Eric Balchunas, who gives BlackRock a 50% chance of getting its spot Bitcoin ETF approved.

The latest wave of ETF filings began on June 16 with BlackRock filing with the SEC. WisdomTree, Invesco and Valkyrie also filed in the following days and weeks.

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On June 28, ARK Invest, which had previously filed for a Bitcoin spot ETF in June 2021, changed its filing to make it similar to BlackRock’s. The next day, asset manager Fidelity Investments also filed for a spot Bitcoin ETF. A total of seven institutional giants have applied for a Bitcoin spot ETF so far.

Some industry observers believe that 2023-2024 will be crucial for the approval of a spot Bitcoin ETF. Robert Quartly-Janeiro, chief strategy officer of cryptocurrency exchange Bitrue, told Cointelegraph that the time is right because “inflation is rampant and the money supply is ambiguous, interest rates are high and companies are reporting decent revenues, which means cryptocurrency will need to operate in an economic environment where rates and inflation are key factors.”

Institutional trust in Bitcoin

Bitcoin has weathered the aftermath of 2022 exceptionally well and has recovered more than half of its price decline during the bear market, largely due to continued institutional investor interest in the asset.

Indeed, there are many more institutional investors in the cryptocurrency market today compared to just a year ago. Until 2022, institutions kept a secure distance from the market, and even MicroStrategy stopped its routine BTC purchases.

Many gigantic funds and companies have become interested in cryptocurrencies and are exploring their potential to invest in them.

Despite market volatility, global institutions show constant interest in cryptocurrencies. Bitfinex Chief Technology Officer Paolo Ardoino told Cointelegraph that Bitcoin represents enormous value in terms of utility and unique nature as a perfectly sparse resource that can never be depreciated. He said: “Most traditional financial institutions realize this,” adding: “It is not surprising that at a time of record inflation in both major industrialized economies and emerging markets, markets have a better understanding of the value of Bitcoin.”

“Recent new uses of Bitcoin spot ETFs by some of the world’s most important asset managers demonstrate that there is demand for Bitcoin from both investors and issuers, and this will only increase. In addition to demonstrating increased institutional demand for Bitcoin, this will also attract new retail investors and encourage broader participation,” Ardoino said.

While many institutions have distanced themselves from cryptocurrencies over the past year, much of this has been due to the FTX-induced public relations disaster, and bank failures have further exacerbated this. Richard Gardner, CEO of Modulus, told Cointelegraph that institutions anticipated the crypto industry slowdown and chose to hide and avoid the political and public response after FTX, thinking they would be able to reconsider their decision before cryptocurrencies surge.

“We are at the point where they are starting to weigh the risks versus the benefits of returning to the fight. Most institutions are likely to be much more cautious given the FTX disaster. They will largely be repositioned based on the regulatory environment. As governments build out the full regulatory system and bureaucrats decide how they plan to interpret the law, institutions will assess their response and move forward accordingly,” Gardner said.

MicroStrategy – a leading Bitcoin investor and one of the driving forces behind the institutional adoption of BTC in 2020 – continued its Bitcoin buying spree in 2023. When the company suffered bulky losses as the BTC price dropped below $16,500, CEO Michael Saylor maintained that he had no intention of selling and would continue to add more BTC to his treasury. MicroStrategy currently holds 152,333 BTC acquired for approximately $4.52 billion at an average price of $29,668 per Bitcoin.

Institutional inflows are reinvigorating bull market optimism

While the 2017 bull market was driven by retail interest, the 2020-2021 bull market was driven by institutional inflows, such as MicroStrategy and Tesla, and many other publicly traded companies that added Bitcoin to their balance sheet.

Gracy Chen, managing director of cryptocurrency exchange Bitget, told Cointelegraph that institutions will act quickly when they see “stable and predictable retail interest.” Chen said: “The cumulative impact of institutions exceeds that of individual investors and therefore they will continue to be the driving force behind cryptocurrency market capitalization growth.”

She also highlighted that growing institutional interest could fuel further cryptocurrency adoption, helping to usher in another bull run:

“Analysts expect that if BlackRock’s ETF application is approved alone, the price of Bitcoin could double. Given BlackRock’s potential institutional investor base and influence, the approval of their BTC spot ETF will have a greater impact on the development of the cryptocurrency market. With the BTC application, the spot ETF will likely inspire competition among relevant financial firms. This will direct more funds from traditional markets to Web3.”

In addition to institutional pressures, there has been major development in the retail market, with Hong Kong opening its doors for cryptocurrency exchanges to offer services to retail customers. Ben Caselin, vice president of cryptocurrency exchange MaskEX, told Cointelegraph that during the previous bull market, “US institutions were the main drivers of growth, but they were probably not ready to get deeply involved and did not behave differently from retail, essentially chasing yields and acting on hype.”

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“I expect this bull market to be driven again by Asia, perhaps with Hong Kong leading the region, but based on my personal observations I also expect significant momentum from the Middle East, particularly the United Arab Emirates, Saudi Arabia and other oil-rich jurisdictions,” he added.

With Bitcoin’s next halving scheduled for April 2024, growing interest from institutional investors is seen as a bullish sign for Bitcoin’s price and the broader cryptocurrency market. Historically, the bull run began in the run-up to the Bitcoin halving, during which the BTC reward amount per block halved every four years. The scarcity factor is driving prices higher as retail traders and institutional giants rush to add Bitcoin to their portfolios.