Within a year of the three halving events, Bitcoin has seen three major bull runs in its 15-year history. In each of 2013, 2017, and 2021, the price of Bitcoin generally declines significantly until the next Bitcoin.
However, the post-Bitcoin ETF landscape appears to have created new rules of engagement. Since February 16th, Bitcoin ETF flows have recorded nearly $5 billion in net inflows since January 11th. This represents buying pressure of 102,887.5 BTC during that period. BitMEX Research.
As expected, BlackRock’s iShares Bitcoin Trust (IBIT) leads the way with $5.3 billion, followed by Fidelity’s Wise Origin Bitcoin Fund (FBTC) with $3.6 billion and ARK 21Shares Bitcoin ETF (ARKB) in third place with $1.3 billion. .
Over a five-week period, $10 billion in cumulative AUM has flowed through Bitcoin ETF trading, bringing the overall cryptocurrency market cap close to $2 trillion. This level of market participation was last seen in April 2022, sandwiched between the Terra (LUNA) collapse and the month following the collapse. The Fed has begun a rate hike cycle.
The question is how new Bitcoin ETF-centric market dynamics will shape the cryptocurrency landscape going forward.
Impact of $10 Billion AUM on Market Sentiment and Institutional Interest
To understand how the price of Bitcoin affects the overall cryptocurrency market, you first need to understand the following:
- What determines the price of Bitcoin?
- What are driving the altcoin market?
The answer to the first question is simple. Bitcoin’s limited supply of 21 million BTC means scarcity enforced by a powerful computing network of miners. Without it and the proof-of-work algorithm, Bitcoin would have been just another copied digital asset.
This digital scarcity, fueled by physical assets of hardware and energy, heading into the fourth halving in April, the percentage of Bitcoin already mined is 93.49%, pushing Bitcoin’s inflation rate below 1%. Moreover, the sustainability hosting vector for Bitcoin miners is weakening as renewable resources increase.
In practical terms, this indicates that Bitcoin is perceived as a sustainable, permissionless, sound currency and, as is the case with all fiat currencies, is not subject to arbitrary tampering. As a result, Bitcoin’s simple proposition and pioneering status currently dominates the cryptocurrency market with a 49.5% share.
As a result, the altcoin market revolves around Bitcoin and serves as a reference point for market sentiment. There are thousands of altcoins to choose from, which creates a barrier to entry as fair value is difficult to measure. A rise in the price of Bitcoin increases the confidence of investors to engage in such speculation.
Altcoins have significantly lower market capitalizations per individual token, allowing them to profit more from price fluctuations. Over the past three months, this has been demonstrated by SOL (+98%), AVAX (+93%), and IMX (+130%), among many other altcoins.
Investors looking to earn higher returns with small-cap altcoins can benefit from the Bitcoin interest spillover effect. In addition to these dynamics, altcoins offer unique use cases that go beyond the sound money aspect of Bitcoin.
- Decentralized Finance (DeFi) – Lending, Borrowing, Exchange
- Tokenized Play-to-Earn Game
- Transfer money across borders with near-instant payments and negligible fees
- A utility and governance token for DeFi and AI-based protocols.
With Bitcoin ETFs now active, institutional capital is taking the lead. The AUM growth of spot-traded Bitcoin ETFs has been a complete success. As a representative example, when the SPDR Gold Shares (GLD) ETF was launched in November 2004, it took the fund a year to reach a total net asset level of $3.5 billion, which BlackRock’s IBIT achieved in one month.
Going forward, whales will continue to push the price of Bitcoin through strategic allocation.
Strategically Integrate Spot Bitcoin ETFs into Your Investment Portfolio
The Bitcoin ETF has received approval from the Securities and Exchange Commission (SEC) to authorize allocations to financial advisors. There is no greater indicator of this than U.S. banks seeking approval from the SEC to grant them the same authority.
Bank lobbying groups, along with the Bank Policy Institute (BPI) and the American Bankers Association (ABA), are imploring the SEC to repeal the Staff Accounting Bulletin 121 (SAB 121) rule enacted in March 2022. We can expand cryptocurrency exposure for our clients based on their balance sheet requirements.
Even without the bank portion of your Bitcoin allocation, the potential for it to flow into your investment portfolio is significant. As of December 2022, the U.S. ETF market size has total net assets of $6.5 trillion, accounting for 22% of assets managed by investment companies. Allocating this is not difficult as Bitcoin is a hard counter to inflation.
Stefan Rust, CEO of Truflation on Cointelegraph, said:
“In this environment, Bitcoin is a good safe haven asset. It is a finite resource, and this scarcity will allow its value to increase with demand, ultimately making it a good asset class for storing value or even increasing value.”
Without having to hold actual BTC and deal with self-storage risk, financial advisors can easily make the case that even 1% of their Bitcoin allocation has the potential to increase returns while limiting market risk exposure.
Balancing improved returns with risk management
According to Sui Chung, CEO of CF Benchmarks, mutual fund managers, Registered Investment Advisors (RIAs) and asset management firms that use the RIA network are abuzz with Bitcoin exposure through Bitcoin ETFs.
“We’re talking about a platform that individually counts over $1 trillion in assets under management and under advice. It’s likely that very large floodgates that were previously closed will open in about two months.”
Jeong Soo-i to CoinDesk
Prior to the approval of the Bitcoin ETF, Standard Chartered estimated that these floodgates could result in $50 billion to $100 billion of inflows in 2024 alone. Matt Hougan, chief investment officer of the Bitwise Bitcoin ETF (currently $1 billion in AUM), noted that RIAs have set portfolio allocations between 1% and 5%.
This is based on a Bitwise/VettaFi survey released in January, which found that 88% of financial advisors see Bitcoin ETFs as a major catalyst. The same percentage of customers have inquired about cryptocurrency exposure in the past year. Most importantly, the percentage of financial advisors advising large cryptocurrency allocations of 3% or more of their portfolios more than doubled from 22% in 2022 to 47% in 2023.
Interestingly, 71% of advisors prefer exposure to Bitcoin over Ethereum. This is not surprising, considering that Ethereum is an ongoing coding project suitable for purposes other than sound money.
In a feedback loop, as Bitcoin allocation increases, Bitcoin’s implied volatility stabilizes. Currently, Bitcoin’s at-the-money (ATM) implied volatility reflects market sentiment regarding price movements and has calmed compared to the sharp surge that led to the approval of the Bitcoin ETF in January.
With all four time frames (7-day, 30-day, 90-day, and 180-day) above the 50% range, market sentiment is consistent with the cryptocurrency fear and greed indices entering “greed” territory at a high level. At the same time, larger liquidity pools make price discovery more efficient and reduce volatility because there is a greater wall between buyers and sellers.
However, some obstacles still remain.
Learn about future trends in cryptocurrency investment and Bitcoin ETFs
Grayscale Bitcoin Trust BTC (GBTC) accounted for $7 billion worth of outflows compared to Bitcoin ETF inflows. This selling pressure was caused by the fund’s relatively high fees of 1.50% compared to IBIT’s 0.12% fee (with a 12-month exemption period). This, combined with profit-taking, created significant selling pressure.
As of February 16, GBTC held 456,033 Bitcoins, four times more than all Bitcoin ETFs combined. In addition to the selling pressure that has yet to be resolved, miners are preparing for Bitcoin’s fourth halving by selling BTC for reinvestment. According to Bitfinex, this resulted in an outflow worth 10,200 BTC.
Every day, a Bitcoin miner generates approximately 900 BTC. Regarding weekly ETF inflows, as of February 16, BitMEX Research reported +6,376.4 BTC added.
So far, these dynamics have pushed the BTC price to $52.1k, the same as the Bitcoin price in December 2021, just one month after the ATH level of $68.7 on November 10, 2021. In the future, 95% of Bitcoin supply will be profitable. Selling pressure will be exerted through profit taking.
But pressure on the SEC from the banking lobby indicates that buying pressure will overshadow such a market exit. By May, the SEC could approve the Ethereum ETF, further boosting the overall cryptocurrency market.
In that scenario, Standard Chartered predicted that the ETH price could exceed $4,000. Barring a major geopolitical upheaval or stock market crash, the cryptocurrency market can be expected to see a repeat of the bull market in 2021.
conclusion
The erosion of money is a global problem. Wage increases are not enough to outpace inflation, leading people to engage in increasingly risky investment behavior. Bitcoin, secured by cryptographic mathematics and computing power, offers a solution to this trend.
As the digital economy expands and Bitcoin ETFs reshape the world of finance, the behavior of investors and advisors is increasingly prioritizing digital. This change reflects a broader societal movement towards digitalisation, highlighted by 98% of people wanting remote working options, preferring purely digital communication. These digital preferences impact not only our work but also our investment choices, which points to a broader acceptance of digital assets like Bitcoin in modern portfolios.
Financial advisors are prepared to view Bitcoin exposure as a portfolio return booster. In 2022, the price of Bitcoin suffered a severe decline due to cryptocurrency bankruptcy and sustainability concerns.
This FUD supply will be depleted and the market dynamics will remain the same. The approval of Bitcoin ETFs for institutional exposure marks a groundbreaking reorganization of the cryptocurrency landscape, pushing BTC price closer to its previous ATH.