Bitcoin enters the big league

 

On Jan 11, 2024, amidst equal amounts of fanfare and controversy, 10 firms launched bitcoin exchange-traded funds or ETFs.

Most notably, they included Blackrock, the largest asset manager in the world, with US$9.1 trillion under management and Fidelity, another giant with US$4.5 trillion under management.

The bitcoin ETFs essentially allowed bitcoin, the world’s first digital-native asset to be traded on the US stock market, easy access and exposure to asset managers and individuals alike.

While anyone could technically buy bitcoin before the ETFs, many baulked at it as they either thought of it as illegitimate or difficult to procure, needing to buy it through crypto exchanges, many of which have not exactly had a squeaky-clean track record, to put it mildly.

Many major funds also lacked the mandate to be able to buy a product that wasn’t trading on public markets. The ETFs solved this by acting as a wrapper for bitcoin, imbuing it with legitimacy and providing easy access to it through most major brokerages.

Basically, it is like buying any other stock. Think of it as an alternative way to access digital assets. It gives the buyer indirect exposure to the cryptocurrency without the technical hassles.

Post-launch, the bitcoin ETFs immediately started sucking in hundreds of millions of dollars of investor money daily. If we exclude the Grayscale bitcoin ETF (GBTC), which converted from a fund into an ETF, the cumulative investment garnered by the remaining nine ETFs came up to a whopping US$12 billion within five weeks of launch.

Recently, they’ve been gobbling up anywhere from US$300 million – US$600 million on a daily basis. This makes the bitcoin ETF launch the most successful ETF launch in history, smashing all prior ETF launch records.

Last week, US$2.45 billion flowed into ETF funds – the highest weekly total ever – pushing the price of a Bitcoin past US$50,000.

In fact, Wall Street’s ravenous appetite for bitcoin surprised many bitcoin enthusiasts.

But why is there such incredible demand for a product that many have a relatively poor grasp of?

Some are chalking it up to FOMO (fear of missing out), and some to shiny new object syndrome. Sure, that’s a part of it but that does not paint the complete picture.

This is an organic, pent-up demand for a one-of-a-kind asset. An asset whose supply can’t be increased to meet demand. An asset that programmatically disinflates every four years. A nation-state and central bank-independent asset that has no issuer and can’t be seized or debased. An asset that ushers its holders into an immutable rules-based monetary order. An asset that isn’t beholden to a board or a balance sheet or shareholders or quarterly earnings.

But of course, none of this would matter if not for the fact that bitcoin has been the best performing asset of the past decade, recently reaching a trillion-dollar market cap, bursting through the list of the top ten assets in the world.

And now thanks to the ETFs, Wall Street has gotten in on the action.

Bitcoin is already up more than 114% over the past year, and with more institutional money flowing into this asset class, many anticipate that Bitcoin’s value will shoot up even more. although volatility is also predicted.

Investments in bitcoin make up more than half of the US$2.01 trillion parked in the overall cryptocurrency market, which includes ether and other digital coins, according to a Reuters report.

Another major milestone awaits bitcoin around April 20, 2024 – just two months away. It’s a once-in-four-year event called the halving. Post-halving, bitcoin’s daily issuance will be cut from the current 900 bitcoin to 450 bitcoin.

This cuts its annual supply inflation from 1.8% to 0.9%. Even at the current inflow rates, the ETFs are siphoning off around 10 times the amount of bitcoin produced in a day. After the halving, this number could double to 20.

And so, this new development in finance promises to be one hell of a ride. - FMT

The writer can be contacted at kathirgugan@protonmail.com.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.