The hidden opportunities behind the Bitcoin ETF approvals
What nobody's talking about
Spot Bitcoin ETFs got approved for the first time in the US, not just one but close to a dozen. Bitcoiners worldwide are giddy because it means tens of billions of dollars have begun chasing the asset, starting now. Everyone who held firm and HODL’d through the bear market deserves a pat and high five.
But this is Alt Macro. We’re here to learn about what’s next, not what’s happening.
Today, we’ll be answering two questions:
What does the approval of Bitcoin ETFs mean for the future of Bitcoin? Then, more importantly - what is the next big opportunity that follows?
Let’s start with the first.
Investing in Bitcoin meant learning a new platform (like Coinbase or Binance) and understanding the difference between hot and cold wallets. Taking custody of the coins required learning the technicalities of securing your private keys. Millions of dollars of Bitcoin have been forever lost because of these hurdles.
ETFs remove almost all this friction of buying and holding the asset.
Now, buying Bitcoin is as easy as purchasing a stock or mutual fund, opening it up to waves of buyers.
Unlike futures ETFs which are based on contracts, spot ETFs will require funds to buy and hold the underlying asset.
This additional demand for a highly scarce asset like Bitcoin could cause a supply shock and drastic upward price movements.
For some context, Blackrock - who launched one of the eleven ETFs, and is the world’s largest asset manager - gobbled up 11,500 BTC just two days after launch. At the current rate, 900 Bitcoin are issued daily, so that’s 13 days of supply taken off the market by just one player.
Add in demand from other ETFs globally, retail investors, sovereign funds, and other institutions, and there’s not enough Bitcoin to go around.
This shortage will be more pronounced by April this year when the famous halving event happens: the programmed reduction in Bitcoin’s supply by 50% that occurs every four years.
These are a few reasons why it’s an exciting time for anyone holding Bitcoin.
Beyond the supply crunch, the more significant impact of the SEC’s approval will be the regulatory framework that legitimizes the asset class.
It will give institutions and sovereign wealth funds the security they need to allocate a portion of their funds to Bitcoin.
A large, forward-thinking sovereign fund - like one belonging to the Saudis, Emiratis, or Qataris - allocating just half to one percent of their reserves to Bitcoin would be a game-changer for the space.
The ETF approvals will shape the future of Bitcoin by causing a supply shock and triggering the next big narrative for the asset:
“Which is the first major sovereign wealth fund to allocate a portion of their portfolio to Bitcoin?”
If this isn’t a big enough development to pay attention to, I don’t know what is.
Now, looking at the next question - what is the next big opportunity that follows?
To answer this, we had some telltale signs leading up to the SEC’s decision.
By now, most of you know that nothing happens in Bitcoinlandia without some spicy controversy. The lead-up to the January 10th approval served up its fair bit of drama.
In an apparent breach, the SEC’s X account (formerly Twitter) tweeted that the approval was confirmed a day before the deadline for a decision. The announcement on X before the SEC’s website felt off, and many people questioned its legitimacy.
It didn’t take long for the tweet to be taken down, and SEC chairman Gary Gensler put out his message saying that no such approvals were made.
Naturally, the price of Bitcoin whipsawed along with the rest of the crypto market. But what stood out was the price of Ethereum - the second largest cryptocurrency in market cap, following Bitcoin.
With the fake approval, the price of Bitcoin held steady, as Ethereum’s skyrocketed.
Nobody saw this coming.
Some said that Mr. Market showed his hand, and they were right.
This was identical to the price movement when the official approval by the SEC came out the following day.
The price of Bitcoin pumped by a little over 2%, but nothing like Ethereum’s 5.6% surge.
So, what’s the takeaway from this?
The big winner from the Bitcoin ETF will likely be the rest of the crypto market.
The knock-on narrative will be: “What’s the next crypto ETF to be approved?”
There are arguments that Solana and XRP could be the following cryptocurrencies to get their ETFs, but in a highly volatile and nascent space, the SEC will likely err towards the more “bluechip” coins.
Also, to get approval, any asset must be classified as a commodity and not a security. Besides Bitcoin, only Ethereum seems to pass this test, according to the SEC.
It’s not just me that thinks so. Blackrock has filed for an Ethereum ETF, amongst a host of other funds. SEC decisions are due for their applications from May through August this year.
Blackrock never loses. Would you bet against them?
Before investing in Bitcoin, Ethereum or any cryptocurrency, you must educate yourself on the network and its potential. If you don’t know what you’re getting into, the volatility will freak you into selling when the price is low. The time you take to build your knowledge could be the X factor your portfolio needs.
What do you think about the narrative of sovereign funds driving the next leg of demand for Bitcoin? Do you expect the approval of a spot Ethereum ETF? Leave me a comment or hit reply if you’re reading this from your inbox - I would love to hear from you!
Disclaimers:
The author owns the digital assets or cryptocurrencies mentioned in this article.
All material on the Alt Macro web/server and newsletter is not investment advice, but is for general information only. You are solely responsible for making your own investment and financial decisions. Owners of this newsletter, its representatives, its principals, its moderators, and its members, are NOT registered as securities broker-dealers or investment advisors either with the U.S. Securities and Exchange Commission or with any securities regulatory authority.