What's up with Bitcoin?
There's not enough to go around
Today marks two months since the SEC approved the first spot Bitcoin ETFs on January 11th.
The Alt Macro edition covering this watershed moment discussed what it meant for Bitcoin as an asset while speculating on the hidden investment opportunities that could arise from it.
In particular, this approval may boost the chances of a spot Ethereum ETF (the second largest cryptocurrency after Bitcoin), therefore opening up an even greater opportunity for investors.
Eight weeks ago is a lifetime. For those following this investment narrative, here’s where things sit.
Right after the ETFs launched, the price of Bitcoin crashed by 20% the following two weeks, in typical fashion for a “buy the rumor, sell the news” type event, as speculators look for quick profits from the market hype.
Once the shakeout was complete, Bitcoin’s price found support at around $38,000 and steadily increased to its current record high—set today at $72,000.
That’s a whopping 87% rise over the last six weeks, and it’s all driven by Bitcoin’s supply dynamics.
The ETFs are gobbling up 10 times Bitcoin’s daily supply, while long-term “hodlers” aren’t opening their purses. Despite the price rally, 80% of all Bitcoin has not moved over the last six months.
Demand from the ETFs is relentless, holders aren’t selling, and Bitcoin’s supply is set to halve next month.
I got a C in Economics (hey, it’s still a passing grade), and even I know that demand exceeding supply leads to higher prices.
The supply crunch is here, and it’s real.
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Bitcoin’s historical moment
The ETF approvals were Bitcoin’s quinceañera, a coming of age, and revelation to mainstream boomer investors. The wealthiest generation in history can now make a phone call to their trusted broker and buy Bitcoin just as they would a stock or a mutual fund.
Speaking of trusted brokers, one Blackrock analyst is talking about a 28% portfolio allocation to Bitcoin for an optimal risk-to-reward ratio(!).
Boomers haven’t even gotten started, and Bitcoin’s price is already at an all-time high.
To fully grasp the success of Bitcoin’s ETFs, let’s look at it in the context of gold.
Bitcoin and gold have a fixed supply, so they’re seen as inflation hedges or for times of ‘monetary debasement’— when money printing goes haywire.
They’re designed to protect investors from uncertainty.
In times like now.
We’re coming to grips with potential changes in monetary policy (interest rates), geopolitical crises, and concerns about a possible stock market crash. Inflation is a constant, and the most recent numbers reveal a world economy in trouble - even though the stock market is breaking records.
Within this context, here’s how Bitcoin has been performing relative to gold:
Over the past two months, total flows into the nine new spot Bitcoin ETFs exceed total flows into all physical gold ETFs over the past five years.
In seven weeks, Blackrock’s Bitcoin ETF crossed $10 billion in value. The Gold SPDR ETF, launched in 2004, took two years to reach this number.
Gold has increased 4% since the beginning of the year, compared to Bitcoin’s 69% skyrocket.
Physically backed gold ETFs currently have $91 billion worth of assets. Bitcoin has already achieved 57% of this within just two months ($52 billion in total assets at the time of writing this).
It’s the most successful ETF launch ever. Bitcoin is making financial history.
Bitcoin’s bridesmaid
When investors get excited watching their profits go up, they start looking over their shoulders for the next wave to catch.
There’s a chance that Bitcoin profits may be swayed towards Ethereum if its ETF applications are approved.
Ethereum is the second-largest cryptocurrency, right behind Bitcoin. Seven applications for a spot ETF are pending approval by the SEC. A green light is expected to open the floodgates, and Ethereum’s value would be carried upward by its larger peer’s momentum.
When this narrative was forming two months ago, the odds of approval were slightly over 80%. This has now come down to 38% when writing this.
The static silence from the SEC on this matter is throwing shade on the process.
I’m following Eric Balchunas - senior expert on ETFs for Bloomberg - to keep up.
According to him, the SEC “begrudgingly” allowed the Bitcoin ETF, and it took a lawsuit to force their hand. This time, no legal proceedings hover over their decision, and the SEC may likely deny the Ethereum applications to ease the political blowback they received for allowing Bitcoin’s.
SEC Chairman Gary Gensler’s disdain for Bitcoin (and crypto in general) is real.
Here’s a snippet from his announcement on the Bitcoin ETF approvals: “(Bitcoin is) primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing.”
Thanks for the reminder Gary, we know how much you want to protect our interests.
Beyond ETFs
Ethereum may have priced in the possibility of an ETF approval, so a disappointing outcome could drop its price. Crypto natives would likely swoop in, knowing what the upcoming ‘Dencun upgrade’ could do to exponentially increase innovation in the Ethereum ecosystem.
ETF or not, the success of Bitcoin opens the doors for the proliferation of blockchain-based solutions.
Ethereum’s potential goes beyond the whims of the SEC.
What do you think Bitcoin’s bullish price action says about the markets? How are you playing these markets? 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 mentioned in this article, Bitcoin and Ethereum.
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.