The calm before the storm: Is the BlackRock Bitcoin Spot ETF approval imminent?
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 US dollars behind it, is apparently on the verge of approving a Bitcoin spot ETF. On the website of the “Depository Trust & Clearing Cooperation”, which handles trading for the Nasdaq, the Spot ETF is already listed with the trading symbol “IBTC.” According to Eric Balchunas — senior ETF analyst from Bloomberg — this is an essential “part of the process of launching an ETF.”
Source: https://twitter.com/EricBalchunas/status/1716529570759704832
To classify: The DTCC is an important part of the infrastructure behind US financial markets. It processes stock purchases and sales worth 2.3 quadrillion US dollars annually (just for information: A quadrillion is a thousand trillion and a trillion is in turn a thousand billion). This makes them the largest financial clearing house in the world. In addition, the ETF analyst continues that BlackRock is currently looking for seed investors. A so-called “seed investor” is one of the first investors in an ETF before it is traded on a stock exchange.
Source: https://twitter.com/EricBalchunas/status/1716487573588070728
Balchunas further speculated that BlackRock has either already received the green light for the stock exchange listing or is simply preparing everything because it is assumed that the ETF will be approved.
Source: https://twitter.com/EricBalchunas/status/1716536307223036098
Just last week, there was a false report from the crypto media company Cointelegraph As a result, the Bitcoin price rose to almost 30,000 dollars within a few minutes. But the first doubts soon arose on X (formerly Twitter). The comments asked for a source because Cointelegraph had not provided it. But the evidence that the ETF had actually been approved initially intensified.
Bloomberg's senior ETF analyst Eric Balchunas reported that Reuters is also reporting that the SEC has approved the ETF. This was followed by great disillusionment when the 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 went downhill again. However, the damage had already been done, because everyone who was levered short, i.e. had bet on falling prices, was suddenly flushed out of the market. Within just an hour of publishing the tweet, positions were worth of over 100 million US dollar 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 much more than mere ETF speculation. “The rally today is an escape to quality”, Fink says literally. 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 this is how times change. Just a few years ago, Fink described Bitcoin as an “index for money laundering.” Whichever way you turn it. The price reaction at least showed that an ETF had not yet been priced in, as some had claimed.
One thing can be said with a high degree of probability. If the application is approved by BlackRock, this could result in a whole range of other ETFs being approved, such as the ETF from ARK or Fidelity. But why is a Bitcoin ETF so important? Why is this causing so much excitement in the Bitcoin space and on financial markets in general? It's very simple.
Many large institutional investors, such as insurance companies or pension funds, currently have no opportunity to invest in Bitcoin. A spot Bitcoin ETF would be a game changer here, because it is easy to purchase via a stock exchange and generally meets all regulatory requirements that large institutional investors face.
As mentioned earlier, an ETF would flush huge sums of money into the relatively small Bitcoin market. After all, BlackRock currently manages around 10 trillion US dollars. Vanguard comes on around 8 trillion. The number three Fidelity still comes to around 4.5 trillion US dollars. So together, the top 3 have more than 20 trillion assets under management. But how much of it could then actually flow into the Bitcoin market? So far, only speculation can be made about this. Galaxy Research For example, estimates that a Bitcoin ETF could mean that around 14 billion dollars (see next figure) flow into the market. In the second year, it would already be approx. 27 billion.
Source: https://www.galaxy.com/insights/research/sizing-the-market-for-a-bitcoin-etf/
You always have to be aware of how small the Bitcoin asset class actually still is. The current market capitalization of BTC is currently around 670 billion dollars. Just for comparison: The global bond market is 133 trillion dollars The second-largest asset class in the world after real estate. And debt, particularly that of the USA, continues to grow inexorably from day to day. For example, US debt rose recently in just one day 275 billion dollars to a record high of $33.4 trillion. In just one day, there was about half of Bitcoin's market capitalization added as new debt.
One thing can now be said with great certainty. What we are currently seeing on the bond market is a real historic slump. Over the years, central banks have continued to lower interest rates and through Quantitative easing, pumped huge amounts of money into the market. As a result, a gigantic bubble has formed on the bond market, which is now venting.
This can be seen particularly clearly in the chart trend of the TLT ETF (see next chart). This includes long-term US government bonds with a maturity of more than 20 years. In mid-2020, the ETF had a high of around 170 dollars achieved. After that, it went steeply downhill up to around 85 dollars. A drop in share price of say and write 50 percent. And that on supposedly safe US government bonds, which are actually as good as money and are also considered virtually risk-free.
Even though Larry Fink still likes to use the word “crypto,” we are currently seeing an escape to the best cryptocurrency available on the market. This can be seen particularly clearly in the so-called “Bitcoin dominance”. Bitcoin dominance basically describes the relationship between Bitcoin's market capitalization and the rest of cryptocurrencies. This is now on a 2.5 year high increased.
In other words, the wheat is just separating from the chaff. Most investors are likely to have 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, known from radio and TV, thought leader, free spirit and fee advisor.
His next book is titled “The biggest revolution of all time — Why our money dies and how you benefit from it” and will focus exclusively on 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 the guest contributions should not be interpreted as financial advice. It is important to note that Coinfinity does not necessarily represent the same positions and views as in the content provided here.
