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Bitcoin Price Soars as ETF Excitement Hits All-Time High
The bitcoin market as well as the broader cryptocurrency ecosystem saw a massive pump over the weekend of October 22nd. This is in no small part due to the iShares ticker being registered with the Depository Clearing and Trust Corporation (DTCC). The registration is a preliminary step along the way to listing the ETF on stock exchanges like the NASDAQ.
So then if the ETF is still not live, why did the news pump Bitcoin’s price by 20%?
iShares Can’t Buy Bitcoin Yet
A massive, often undiscussed, element of the launch of ETFs is that the fund cannot purchase the underlying asset ahead of the launch of the fund. This means that until the ETF is actually live and listed on the market, iShares cannot own any BTC. So, it’s not any wonder that the news of iShares listing on the DTCC caused a 20% pump in the price of BTC. This was simply savvy traders and speculators frontrunning what they see as a solid signal that the ETF will eventually go live.
The question then becomes, if BTC pumps on news of iShares registration, what kind of market activity will ensue when the ETF comes online? Bitcoin is already a volatile asset with deep markets, but iShares enables billions, potentially trillions of dollars to flow in and out of Bitcoin markets. What will happen to the price of BTC is anyone’s best guess.
Spot Market ETF Changes the Game
A spot market ETF, like the one being proposed by Blackrock and offered through iShares, is something that could really take BTC to the next level. The precursor to bitcoin bull markets in the past has been the presence of some sort of a catalyst. In 2020, that catalyst was probably the worldwide stimulus given to citizens in response to COVID-19. The catalyst for this cycle could very well be the establishment of a spot ETF.
The Power of a Bitcoin Spot ETF
Bitcoin already has multiple ETFs in the United States, but they’re futures ETFs. This means that real BTC isn’t being bought and sold. A futures ETF simplifies bets being made on the rise and fall of BTC.
A spot ETF allows customers to own (through iShares) actual bitcoin. The ETF is legally obliged to hold, carry, and custody the underlying asset. So when iShares buyers are acquiring hundreds or thousands of BTC, those units are being bought off of public markets and taken out of the tradable supply. At least, until the owner wishes to sell them again.
An Expanded Market
What this comes down to is a non-trivial expansion in the size and liquidity of Bitcoin markets globally. Bitcoin already trades tens of billions of dollars of volume with the USD on a daily basis. The introduction of an ETF marks a considerable increase in the amount of money that “is possible” to move into bitcoin.
Many people in developed countries hold their value in assets on the stock market. These assets are “in the system” so to speak. The same systems that allow them to buy mutual funds and Tesla stock will now soon be able to be used to buy BTC on spot.
Previously, buyers would have to liquidate assets into USD, move it to a bank account, then to an exchange to buy BTC. The ETF represents the removal of significant barriers and friction points around buying and holding bitcoin, especially at the institutional level.
How Much Money Does Blackrock Manage?
As of Q2 2023, Blackrock has publicly reported to be managing about $9.3 trillion in assets. For the sake of example, let’s think about a scenario where 1% of Blackrock’s total assets under management (AUM) is suddenly allocated to bitcoin.
That’s 93 billion dollars moving into BTC. While the actual reality of the movement of this money will certainly vary, it is useful to think about these scenarios with a conservative mindset. The amount of money soon to move into BTC is definitely more than 0 and probably less than $93 billion.
Frontrunning the Price
A reality that is somewhat unfortunate for those who are waiting for the ETF to come out is that the launch date is still up in the air. Approvals are still being acquired and regulatory processes are still being worked out. After all, the BTC spot ETF is the first of its kind in the United States.
It is then reasonable to expect, especially after the 20% BTC price action seen over the weekend, to see more speculation on the price of BTC in the broader markets. The aim would be to frontrun the incoming volume from iShares.
With the facts that I’ve laid out above, seasoned traders, hedge fund managers, and certainly HODLers are likely to be increasingly enticed to throw more money into Bitcoin. Whether or not that volume results in higher prices for BTC is anyone’s best guess. However, in anticipation of the May 2024 halvening, the Blackrock ETF is just the sort of thing that could send BTC straight into bull market mode.
