Traditional financial firms ultimately believe that digital assets are here to stay. Or so one might conclude from a flurry of statements from some of the world’s top financial institutions last week.
These include BlackRock — the world’s largest asset manager with $9 trillion in assets under management (AUM) — applying for a license to establish a Bitcoin-based “spot market” exchange-traded fund (ETF) — which Items that are SEC-approved have been strongly resisted.
Others include Fidelity Investments, Charles Schwab and Citadel’s new cryptocurrency exchange EDX. In Germany, Deutsche Bank, which has $1.4 trillion in balance sheet assets, applied for a license to custody cryptocurrencies. There are others.
Collectively, these developments have boosted the cryptocurrency exchange market. Bitcoin (BTC) is up 20% this week, breaking the $30,000 mark for the first time since April. If allowed, listing the BlackRock Bitcoin ETF on the Nasdaq stock exchange could arguably make bitcoin more accessible to a wider investing public.
Some even expected the BlackRock document to lead to a Bitcoin boom, with others like Invesco and WisdomTree following suit.Fidelity Investments submit Launched a spot bitcoin ETF on June 29.
“The Great Accumulation Has Begun” Announce Cameron Winklevoss on Twitter, and MicroStrategy’s Michael Saylor Add to“The window for institutional preemptive demand for #Bitcoin is closing.”
The big accumulation of Bitcoin has already begun. Anyone who has followed the deluge of ETF filings knows that the window to buy pre-IPO bitcoin before the ETF goes live and opens the floodgates is closing fast. If Bitcoin Is The Clearest And Best Investment Of The Last Decade, Then…
— Cameron Winklevoss (@cameron) June 21, 2023
Others, however, said they were not shocked by these developments, even after a year of crypto-related scandals, bankruptcies, lawsuits and regulatory uncertainty in the United States. In this view, these institutions are simply bowing to the inevitable.
“I’m not surprised that the movement of digital value is the next obvious evolution of the internet from a fundamental standpoint,” Jim Kyung-Soo Liew, associate professor of finance at the Johns Hopkins University Carey School of Business, told Cointelegraph. Surprised the US hasn’t embraced it.”
The events of last week have raised some questions: How durable is Bitcoin’s recent price rise? There have been previous sightings by institutional investors. Will this time be different, or will Bitcoin and other cryptocurrencies resume sideways market activity?
On the other hand, some believe that a company of BlackRock’s size could indeed change the bitcoin market.
Bitcoin has a fixed supply cap of 21 million BTC, and its existing inventory is relatively illiquid. 68% of BTC in circulation has not changed in the past year, according to to Glassnode. In other words, there isn’t much stock on shelves for BlackRock and others to snap up. If demand outstrips supply, does that inevitably mean higher bitcoin prices?
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Also, where do retail investors stand among the new institutional investors? Perhaps ordinary crypto users also need stable bitcoin prices.
Finally, assuming the so-called great accumulation does happen, how far can it go? Today, the market capitalization of the cryptocurrency world is about $1 trillion, about half of which is Bitcoin. Could the cryptocurrency market cap grow 10-fold to $10 trillion in five years?
Has the “big accumulation” started?
“Anyone who has been following the deluge of ETF filings knows that the window to buy pre-IPO bitcoin before the ETF goes live and the floodgates open is closing fast.” Announce Winklevoss added: “If Bitcoin was the clearest and best investment of the past decade, this (spot bitcoin ETF) is quite possibly the clearest and best trade of the decade.”
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Sui Chung, CEO of CF Benchmarks, told Cointelegraph: “Clearly, there is a lot of demand from broad U.S. investors for access to Bitcoin through regulated investment funds that would otherwise be out of reach for BlackRock, Fidelity, Invesco, and other major asset managers. Won’t do it.” An S-1 has been filed for a bitcoin ETF. “
Nor is it a surprise that BlackRock and other investment managers are entering this new asset class. Doug Schwenk, CEO of Digital Asset Research, told Cointelegraph: “We have long known that BlackRock is offering BTC investments to clients through its Aladdin platform and Bitcoin private equity fund.”
The recent negative press coverage around Binance and Coinbase “has nothing to do with Bitcoin and may be seen as a good time for a better known, more regulated brand to offer an alternative that end buyers can trust.” BTC ETF is a natural step . “
Winklevoss, Saylor and others warn that retail investors are better off buying bitcoin now to get an ostensibly cheaper “pre-IPO” price before BTC’s price spikes. Are they correct?
“Given Bitcoin’s limited supply and increasingly low supply growth rate, there is some truth to this argument,” Chung added. “However, many investors bought in the $50,000 to $69,000 range, but they Still underwater; on top of that, cash gains over 5% right now. To me, trying to time the market, especially one that’s as volatile as crypto, is a fool’s errand.”
Furthermore, the Winklevoss scenario “depends on the certainty that institutions actually come and that ETFs and other infrastructure investments by large institutions will play a role,” Justin d’Anethan, head of business development for Asia Pacific at Keyrock — a European market maker for digital assets — told Cointelegraph.
“Forward-looking investors might try to get ahead of the game and buy in before these actually launch. I’m not personally sure how often that’s going to happen, though,” added d’Anethan.
Assuming BlackRock’s ETF exploration is successful and other institutional investors follow suit, will Bitcoin’s price stabilize well above its current $30,000 level? Or does long-term price stability also require broad retail participation?
“It all depends on how much AUM they can gather if they get approved,” Chung replied. “If there is a lot of volume, then given the limited supply, the price will definitely increase significantly. Bitcoin and its price have nothing to do with who buys Bitcoin and how. As long as the demand for buying exceeds the demand for selling, the price will appreciate.”
Carol Alexander, professor of finance at the University of Sussex Business School, told Cointelegraph that a large number of spot bitcoin ETFs may actually make BTC less stable and less stable. “If there are too many ETFs, all these market makers trying to hedge their positions may sell or buy at the same time. It may increase volatility … I disagree with Winklevoss.”
Alexander has her own bitcoin price scenario in which retail investors play a key role. In March, when BTC was trading around $20,000, she predicted that by June, the price of Bitcoin would rise to $30,000 and trade sideways throughout the summer. This has basically become a reality. “So the question is, what happens in September?” she asked.
“I’m not saying it will — but it could go up to around $50,000. That’s because people are coming back after the summer and there’s more liquidity in the market.”
But it’s also because retail investors aren’t feeling scared anymore after a string of cryptocurrency withdrawals, scandals, bankruptcies and regulatory action over the past year. Increasing investment in the digital asset market by major financial institutions such as Fidelity Investments and JPMorgan Chase has arguably had a calming effect on retail investors.
“I think starting in September, with more clarity on the regulatory front, we’re going to see more acceptance by the common man. The extra volume could bring the price back up to — I don’t mean $68,000, that’s Too high (…) — but there’s a sweet spot around the $50,000 mark, which I think will be the next long-term resistance.”
90% of Professional Investors in Nomura Laser Digital’s June 19 Global Survey explain It’s “important” that any digital asset fund or investment is backed by large traditional financial institutions — at least before considering putting clients’ money in it. Perhaps the announcements made last week by BlackRock, Fidelity, Deutsche Bank, and others. is the signal they were waiting for.
“Maybe,” Schwenk said. “Only time will tell. It’s hard to pick when the tipping point will come. We’ve got other big traditional players involved—BNY Mellon, State Street, Standard Chartered, Franklin Templeton, etc. Respondents in the survey are satisfied, but in the end they will see enough momentum.”
Tenfold growth in five years?
In the medium term, how high will things go? For example, with the active participation of large TradFi firms such as BlackRock, Fidelity, and Deutsche Bank, could the cryptocurrency market cap grow from $1 trillion to $10 trillion or more in the next five years?
“Five years ago, the entire market capitalization of liquid cryptocurrencies, as measured by the CF Broad Cap Index, was about $250 billion and peaked at about $2.6 trillion by the end of 2021,” Chung said. “So a 10x seems like a possibility. of.”
He added that major institutions leveraging their distribution networks to support further adoption would also provide a “huge boost”. “However, it wasn’t 5 per cent for the first five years – it is now. What impact that might have, we have no way of knowing.”
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Alexander is less sanguine. “Bitcoin ETF – I don’t even think it’s necessary.” Most ETFs are a basket of stocks or a basket of currencies. In her view, an ETF that includes a basket of cryptocurrencies including bitcoin, ethereum (ETH) and Solana (SOL) “makes more sense.”
‘Exciting Times’ for Bitcoin?
The landscape of institutional investors outside of the cryptocurrency space has been covered before, but they have never actually entered a lot of. Why might this time be different?
Johns Hopkins University’s Liew said: “Institutional investors have a very slow and deliberate due diligence process, but they finally see the light of Bitcoin. Sell your product.” He noted that some exposure to cryptocurrencies is, from an empirical standpoint, a good way to diversify a portfolio, concluding:
“If institutional investors come on board, their demand will definitely push the price up. It’s definitely an exciting time for BTC.”
d’Anethan concluded: “The participation of large financial institutions, whether it is ETF applications or the new EDX exchange, represents a major shift and a defining moment in the US and global cryptocurrency markets.”
Svlook
