The calm before the storm: is BlackRock's bitcoin spot ETF about to be approved?
Oct 30, 2023
There is a lot of buzz in the Bitcoin rumor mill. BlackRock, currently the world's largest asset manager with around $10 trillion behind it, is apparently close to approving a bitcoin spot ETF. On the site of the "Depository Trust & Clearing Cooperation," which handles trading for Nasdaq, the spot ETF is already listed with the trading code "IBTC." According to Eric Balchunas - senior ETF analyst at Bloomberg - this is an essential "part of the process to launch an ETF."
Source: https://twitter.com/EricBalchunas/status/1716529570759704832
To put this in perspective, the DTCC is an important part of the infrastructure behind the U.S. financial markets. It handles $2.3 quadrillion worth of stock purchases and sales annually (just FYI: a quadrillion is a thousand trillion and a trillion is a thousand billion again). This makes them the largest financial clearinghouse in the world. In addition, the ETF analyst goes on to state that BlackRock is currently seeking seed investors. A so-called "seed investor" is one of the first investors in an ETF before it is traded on an exchange.
Source: https://twitter.com/EricBalchunas/status/1716487573588070728
Balchunas went on to speculate that BlackRock has either already gotten the green light for the listing or is simply getting everything ready because they expect the ETF to be approved.
Source: https://twitter.com/EricBalchunas/status/1716536307223036098
Just last week, a false report by the crypto media company Cointelegraph caused the Bitcoin price to rise to almost $30,000 within a few minutes. But the first doubts soon stirred on X (formerly Twitter). In the comments, a source was demanded, because Cointelegraph had not provided one. However, the indications that the ETF had indeed been approved initially became stronger.
For example, Bloomberg senior ETF analyst Eric Balchunas reported that Reuters was also reporting that the SEC had approved the ETF. Shortly thereafter, the big disillusionment followed, when Fox Business journalist Eleanor Terrett gave the all-clear and relied on a statement from BlackRock itself, which had confirmed that it was a false report. And as quickly as it had gone up, it then went down again. The damage had already been done, however, as all those who had been leveraged short, i.e. betting on falling prices, were flushed out of the market in one fell swoop. Within just one hour of the tweet being published, positions worth over 100 million US dollars were liquidated.
Much more interesting, however, was the subsequent reaction of BlackRock CEO Larry Fink, who gave his opinion on the current situation in an interview on Fox Business. According to Fink, the price rally is about much more than mere ETF speculation. "The rally today is a flight to quality," Fink said verbatim. One thing should be clear. The approval of one or more ETFs is likely to (over)flood the comparatively small Bitcoin market with money.
So that's how times change. Just a few years ago, Fink had called Bitcoin an "index for money laundering." No matter how you slice it. The price reaction at least showed that an ETF was not yet priced in, as some had claimed.
One thing can be said with a high degree of probability. If BlackRock's application is approved, it could lead to a whole range of other ETFs being approved as well, such as ARK's or Fidelity's ETF. But why is a bitcoin ETF so important? Why is this one causing so much excitement in the bitcoin space and in the financial markets in general? Simple.
Many large institutional investors, such as insurance companies or pension funds, do not currently have the opportunity to invest in Bitcoin. A spot Bitcoin ETF would be a gamechanger here, because it can be easily acquired via an exchange and usually meets all regulatory requirements that large institutional investors face.
As mentioned earlier, an ETF would inject enormous sums into the relatively small Bitcoin market. After all, BlackRock currently manages around 10 trillion US dollars. Vanguard has around 8 trillion. Number three Fidelity still manages around 4.5 trillion US dollars. Together, the top three have more than 20 trillion in assets under management. But how much of that could actually flow into the Bitcoin market? So far, we can only speculate about that. Galaxy Research estimates, for example, that a bitcoin ETF could mean that in the first year alone, around $14 billion (see next figure) would flow into the market. In the second year, it would already be around 27 billion.
Source: https://www.galaxy.com/insights/research/sizing-the-market-for-a-bitcoin-etf/
One must always keep in mind how small the Bitcoin asset class actually still is. The current market capitalization of BTC is around $670 billion. Just for comparison, the global bond market is the second largest asset class in the world after real estate at $133 trillion . And debt, especially that of the U.S., continues to grow inexorably by the day right now. Just recently, for example, U.S. debt increased in just one day by 275 billion dollars to a record high of $33.4 trillion. So in just a single day, about half of the Bitcoin market cap was added as new debt.
One thing can now be said with great certainty. What we are currently experiencing on the bond market is a truly historic slump. For years, the central banks have kept lowering interest rates and pumping gigantic amounts of money into the market through quantitative easing. This has created a gigantic bubble in the bond market, which is now deflating.
This can be seen particularly clearly in the chart performance of the TLT ETF (see next chart). This includes long-dated US government bonds with a maturity of more than 20 years. In mid-2020, the ETF reached a high of around 170 dollars. After that, it went steeply downhill to around 85 dollars. A price loss of no less than 50 percent. And that on supposedly safe U.S. government bonds, which are actually as good as money and are also considered virtually risk-free.
Even though Larry Fink still likes to mouth the word "crypto", we are currently seeing a flight to the best cryptocurrency on the market. You can see this particularly clearly in the so-called "bitcoin dominance." Bitcoin dominance basically describes the ratio between the market capitalization of Bitcoin and the rest of the cryptocurrencies. This has meanwhile risen to a 2.5-year high.
In other words, the wheat is being separated from the chaff. Most investors have probably burned their fingers on one or the other altcoin and are slowly understanding that Bitcoin is the future and not the 100th new dog meme coin. Or as Michael Saylor would put it: "There is no second best!
Marc Friedrich is Germany's most successful non-fiction author (6 SPIEGEL bestsellers in a row), proven financial expert, sought-after speaker, YouTube star, well-known from radio and TV, thought leader, free spirit and fee-based consultant.
His next book is titled. "The Greatest Revolution of All Time - Why Our Money Is Dying and How You Can Profit From It" and will deal exclusively with the topic of Bitcoin and monetary history.
More information: www.friedrich-partner.de and www.marc-friedrich.de
Twitter and Instagram: @marcfriedrich7
Disclaimer: The views and information expressed in guest posts should not be interpreted as financial advice. It is important to note that Coinfinity does not necessarily hold the same positions and views as those expressed in the content provided here.
