Effects of Bitcoin Etfs on the Market

In my latest for Forbes I lay out implications of an upcoming shift in the crypto world. New bitcoin ETFs coincide with a pre-programmed policy (called “the halving”) that will constrain the production of new bitcoin. What happens if this shift in supply coincides with increased demand from easy-to-use ETFs? The debates are heated, but one thing is clear: whatever your beliefs about bitcoin, it’s on the brink of a new era where ease-of-investing finally meets crypto.   As we stand on the cusp of the next bitcoin halving, the much-anticipated launch of user-friendly bitcoin ETFs has sparked a conversation about shifts in market dynamics. With these ETFs, we're not just looking at a new investment vehicle; we're witnessing a potential gateway for a whole new cohort of investors.  🚀 Bitcoin ETFs offer a familiar investment experience akin to stocks, promising to break down barriers to crypto investment, particularly among those who control wealth but have so far steered clear of digital currencies. 📈 Analysis suggests significant inflows into the ETFs with the potential to drive up prices (BlackRock was the first provider to hit $1 billion in inflows last week, and Fidelity Investments also reached that milestone in just 5 days of trading). Yet, it also raises questions about increased market volatility and the subsequent effects on the crypto world, including mining margins and how ETFs conflict with crypto’s 24/7 markets. 🏛️ On the regulatory front, the SEC’s nod could be a game-changer, offering a layer of perceived safety and clarity mix and potentially accelerating broader acceptance of bitcoin as a legitimate asset class. 💡 As we anticipate the unfolding of these events, key questions to ask include: ➡ Could this be the turning point for widespread bitcoin adoption? ➡ Will the halving coupled with the advent of ETFs create the perfect storm for a surge in bitcoin’s price? ➡ How will the potential volatility impact the long-term perception of cryptocurrencies? Read more about the intricate dance of bitcoin ETFs, the halving, and the future of crypto in my latest article, and jump in with your 💬 thoughts on the future of bitcoin investment with the introduction of ETFs? Do you foresee a bullish horizon or a wave of volatility? Share your insights below! #bitcoin #etfs #cryptocurrency #halving #digitalasset #blockchain https://lnkd.in/gZ_XvsFA

As we approach what appears to be the worst kept secret in blockchain, will the launch of a spot Bitcoin ETF be a “Buy the rumor, sell the news” event?   I share my long explanation in our newly-published Blockchain Letter here: https://lnkd.in/gjMCn8QS   I'll summarize my thoughts below: The old Wall Street adage worked literally perfectly in the last two big regulatory announcements in our space:   The day CME futures went live — December 18, 2017 – was the peak at $20k, the price fell 65% immediately and 84% at the ultimate lows.    The day Coinbase listed — April 14, 2021 – $65k, the price fell 54% immediately and 76% at the ultimate lows.   While starting a prediction with “This time is different…” is not usually an auspicious way to begin, I believe it here.   Neither of those events had any impact on real world access to bitcoin.    It was all “Buy the rumor, sell the news.”   Bitcoin futures didn’t open up any significant new pools of investors. They’re only interesting to a very small niche of mainly arbitragers. Not much net new buying.   The Coinbase offering is even more clear. Coinbase’s website worked great when it was privately held. The next day, when it was publicly-owned the website worked just the same. The change in who owned Coinbase stock did nothing to increase access to bitcoin.   This is different. A BlackRock ETF fundamentally changes access to bitcoin. It will have a huge (positive) impact.   We strongly believe many spot bitcoin ETFs will be approved. We also believe it will happen in a matter of a month or two – not years.   I was at Goldman when they did the GSCI. Now everyone thinks of Commodities as an asset class. In the 90’s I was very active in emerging markets. Now everyone thinks of EM as an asset class. Blockchain will be just like that. The existence of an ETF is a very important step in becoming an asset class. Once an ETF exists, if you don’t have exposure, you’re effectively short.   “Buy the rumor, buy the news.”

If you’re not invested in crypto and you’re having FOMO, you’re not the only one.   Several institutional investors, including pension funds and registered investment adviser-based vehicles, are determined to change the investment landscape. This is spurred by the fact that the first-ever spot Bitcoin exchange-traded fund (ETF) may be approved by the US SEC by 𝐉𝐚𝐧𝐮𝐚𝐫𝐲 3𝐫𝐝. The anticipation has seen Bitcoin soar to $45,000 for the first time since April 2022. But why is the Bitcoin ETF so significant that even pension funds and investment managers are willing to invest in this asset class? It can be put down to the following reasons:   1. 𝐈𝐧𝐬𝐭𝐢𝐭𝐮𝐭𝐢𝐨𝐧𝐚𝐥 𝐀𝐝𝐨𝐩𝐭𝐢𝐨𝐧: A spot Bitcoin ETF would provide a regulated investment vehicle for institutional investors. These players often have mandates or regulations that limit their ability to invest directly in crypto. The ETF structure allows them to invest in Bitcoin without directly holding the asset. 2. 𝐖𝐢𝐝𝐞𝐫 𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫 𝐀𝐜𝐜𝐞𝐬𝐬: ETFs are popular investment vehicles among retail investors. The approval of a spot Bitcoin ETF would make it easier for a broader range of investors, institutional and retail, to invest. This increased accessibility could lead to a more diverse investor base. 3. 𝐋𝐢𝐪𝐮𝐢𝐝𝐢𝐭𝐲 𝐁𝐨𝐨𝐬𝐭: ETFs typically trade on traditional exchanges, providing liquidity and ease of trading. The creation of a spot Bitcoin ETF could enhance liquidity in the Bitcoin market, making it more attractive to institutional investors who often require liquid markets for sizable investments. 4. 𝐑𝐢𝐬𝐤 𝐇𝐞𝐝𝐠𝐢𝐧𝐠 𝐰𝐢𝐭𝐡 𝐃𝐞𝐫𝐢𝐯𝐚𝐭𝐢𝐯𝐞𝐬: The existence of a spot Bitcoin ETF could drive the development and expansion of Bitcoin derivatives markets. Institutional investors may use derivatives to hedge their positions, manage risk, and navigate the volatility of the crypto market. 5. 𝐌𝐚𝐫𝐤𝐞𝐭 𝐕𝐚𝐥𝐢𝐝𝐚𝐭𝐢𝐨𝐧: Approval of a spot Bitcoin ETF by the U.S. SEC signals regulatory acceptance and maturity for crypto. It could encourage more institutional investors to explore and participate in the market. 6. 𝐏𝐫𝐢𝐜𝐞 𝐈𝐦𝐩𝐚𝐜𝐭: The launch of a spot Bitcoin ETF could have a direct impact on the price of Bitcoin. However, the market's response can also be dynamic and influenced by various factors. 7. 𝐌𝐚𝐫𝐤𝐞𝐭 𝐄𝐱𝐩𝐚𝐧𝐬𝐢𝐨𝐧: A regulated spot Bitcoin ETF could pave the way for additional cryptocurrency-related financial products and instruments. This, in turn, could contribute to the overall growth and acceptance of crypto in the traditional financial ecosystem. This is a crucial step in integrating crypto into the broader financial markets and expanding their adoption among various investor groups. As the January 3rd date approaches, the potential implications for the cryptocurrency market's development and maturation are huge. And we may have asset managers like BlackRock to thank for it.

Is the Bitcoin ETF priced in? It's a fascinating question and one I've been asking myself a lot lately. Here's how I'm approaching the question from a data-driven perspective: 1. First, we need to understand the addressable market for a Bitcoin ETF. Bitcoin (and crypto broadly) as an asset class has been primarily a retail phenomenon to date. But 80% of the market is non-retail. Furthermore, approximately 30% of wealth in the US is managed by RIAs — who have had zero incentive to recommend Bitcoin to clients — because they couldn't get paid to do so. A Bitcoin ETF changes this. If RIAs allocate 1% of client assets to BTC, this would represent over $1 trillion of new money coming into the asset. Remember, *price is set at the margin.* $1 trillion coming into the asset doesn't mean $1 trillion increase in market cap. It could be much, much more than that. Which leads to the next few questions: 2. How much Bitcoin is available on exchanges? Currently 2.3 million BTC — which is 17% *less* than was available 5 years ago 🤔 3. What are long-term holders doing? Over 76% of Bitcoin's circulating supply is held by long-term holders today (the highest percentage in Bitcoin's existence). 🤔 4. What about new supply coming to market? The Bitcoin halving is 5 months away. The new supply will be cut from 900 BTC/day to 450. 🤔 Finally, should we expect a headwind or tailwind from global macro and liquidity conditions? Given the pause from the fed, easing in China, and the fact that the US Treasury needs to issue $7 trillion of debt over the next year — it looks like Bitcoin could have the wind at its back for the next few years. ---- The conclusion? The Bitcoin ETF is *not priced in.* With that said, I'm not expecting an instant re-pricing of BTC upon approval and/or release of the product. What do you think? --- Of course, the next logical question is this one: If BTC has a bull run — and a wealth effect occurs as a result — which assets will benefit during the "second leg" of price discovery for crypto more broadly? --- If you're interested, you can subscribe to The DeFi Report for ongoing data-driven coverage. We covered Coinbase's L2, Base in our latest report. Next up we're comparing Ethereum L2's to Avalanche. See the first comment for free access. Data: BTC on Exchanges per Glassnode