We are about three weeks from the anticipated approval of a Bitcoin Spot ETF. To many, this will be a game changer for the industry.
Unless you are living under a rock, anyone tied to crypto will have heard of this. But what does it mean and why is it creating such a stir? There are a lot who feel the approval will set off the next bull run.
We rarely discuss markets here yet I thought an article about this situation could be warranted. There are a lot of pieces so let us dive into them.
Why The Hold Up?
Gary Gensler has been against Bitcoin Spot ETFs for a number of years. The Securities and Exchange Commission (SEC) has turned down every application. Many thought this nuts since there are ETFs based upon futures contracts.
All of this is tied to the type of redemption that is used. There is the "in kind" method along with cash out. For Bitcoin, the SEC is requiring cash out.
What does this mean?
With in kind, redemption can come from a swap of the ETF’s underlying assets with a market maker instead of conducting the transaction in cash. The latter is more expensive, hence driving up the cost of the fund.
All the applications that were applied (and denied) used the in kind model. The SEC is requiring cash out, something the financial institutions, evidently, are complying with.
Therefore, since the companies are in alignment, the presumption is the SEC will finally provide its consent.
More Money Flowing In?
The belief of a new bull market comes from the fact that more money should be available to enter cryptocurrency.
With a series of ETFs available, different accounts will have access to Bitcoin, something presently not allowed. For example, institutional money and retirement accounts can enter. Many of these are restricted in what they can invest in. Certainly, the buying of Bitcoin direct is not possible without custody.
Grayscale was one of the early entrants with its trust. This is not an ETF, something that many shy away from. Exchange Traded Funds are more popular and will likely receive more money. We also have the fact there are going to be a number of companies offering the products to their clients. This will set of a competitive environment. One of the drawbacks to GBTC is the fees.
All of this means there could be more money flowing into Bitcoin. With Ethereum ETF applications already being submitted, this could be also be in the cards for 2024.
The bottom line is Wall Street will heavily be in the game, with the different institutions promoting the funds. This alone will probably push some allocation of funds towards cryptocurrency.
Whether this sets off a bull market or not is something we will have to watch.
Industry In Transition
Here we have another example of how the industry is in transition. Unfortunately, as we see, it has nothing to do with development. As I stated, Wall Street looks at cryptocurrency as another asset class. To them, it is like gold, silver, or interest rate swaps.
Since most take the financial approach, only caring about prices, we are now seeing the result of that viewpoint. Wall Street, the true money players, are going to hijack most of what we see before us. The situation with ETFs makes this clear.
For example, Grayscale once held 3.4% of all Bitcoin that is available. What do you think happens when the likes of Blackrock get involved? These Wall Street institutions can get tens of billions of dollars flowing in. While that will probably send prices up, we do see how this put the coin itself in the coffers of Wall Street banks.
So much for Satoshi's vision.
Here is where I think we see a fork in the road. There is going to be the "traditional" cryptocurrency which is hijacked by Wall Street, has KYC, and is basically another asset class.
The second prong comes from development. This is where people take the tenets of Satoshi, decentralization and an alternative financial system, and build it. Here we see the less glamorous world of coding. It starts with infrastructure before seeing the applications built on top.
Under this scenario, cryptocurrency is not the main focus. Instead, it is integrated into the applications and platforms that are created. It is a clean sheet design because we see how this starts with nothing tied to the existing system.
For decades, Microsoft got all the attention when it came to operating systems. However, quietly progressing was Linux, which has dwarfed Ole Softy in the server realm. Considering we live in a world run by servers, this is a very big deal.
We could see the same happen with crypto. The media will focus upon the major coins which are tied to Wall Street. That said, the real action will be on the fringes where boring development is taking place.
Ultimately, we are likely looking at a 5 years build out process before the masses are aware of what is taking place. This is not going to sit well with all those who are reared in the "I want it now" mindset. However, the existing system was not constructed overnight and neither will its replacement.
That is why building at this time is so crucial. The debate over a Bitcoin Spot ETF is about to come to an end. Next up is the halving of BTC, which will certainly be a topic of discussion.
In the meantime, those who are looking to not be eaten by Wall Street should keep their heads down and just keep building. That is how things will change in the long run.
Remember, crypto is not a different asset class. Instead, every asset class will end up being crypto.