Should I Get into Cryptocurrency? 6 Financial Titans Start a Trillion-Dollar Crypto Tidal Wave
Jun 16, 2023“Should I get into cryptocurrency?”
You probably have friends and family still asking this or you may be asking yourself whether to go deeper into crypto.
Here’s an angle on institutional investors, like hedge funds, pension funds, banks etc. that helps answer the question. The crypto market has largely been driven by retail investors for many years. Publicly traded Microstrategy and a few others have significant bitcoin holdings. Several funds have submitted multiple spot ETF applications with the US SEC and all of them have thus far been rejected. It’s been a bit of a cat and mouse progression of big-time money pouring into crypto. Nonetheless, the institutional tipping point for crypto is inevitable.
Roadblock #1: Compliance
Compliance and market size are the two main roadblocks previously preventing institutional investors from getting in the crypto game. Institutional investors operate with an investment thesis and contractual agreements within tight compliance of regulatory standards. Those ingredients have kept institutional players on the sideline for the most part. They can only invest in compliant investment vehicles and since crypto is begging for clear guidance, institutional investors are waiting on the sidelines.
Roadblock #2: Market size
Market size is the other problem for institutional investors. The June 2023 market cap is hovering around $1T with bitcoin dominance at 50% or $500B. Institutional investor appetite for bitcoin specifically is likely greater than $500B so the bitcoin market is small relative to pent up demand. There isn’t enough meat on the bone to satisfy the hunger as I explained in 3 Reasons You'll Miss bitcoin reaching $1,480,000 in 2030.
This is a classic chicken and egg problem, but it will be solved over time as more demand pushes up the price of the scarcest asset on the planet. The feeding frenzy will turn into a self-fulfilling prophecy. As more institutional investors buy bitcoin the more institutional investors can enter the game. Institutional investors already figured out they should get into cryptocurrency.
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Blackrock’s batting
Blackrock, the world’s largest asset manager, with north of $10T in assets filed a bitcoin spot ETF application in June 2023.
Blackrock’s batting percentage is .998 on ETF applications so a spot ETF approval would pave the way for a slew of other ETF approvals. I’m sure all the funds with rejected bitcoin spot ETF applications are going to be bent out shape over this one. Whether or not you think this is good or bad for bitcoin and crypto is a story for another day. It’s a double-edged sword to say the least.
Blackrock’s batting percentage appears to carry some weight in the eyes of competitors. Within one week both Wisdom Tree, Invesco and Bitwise followed suit by filing ETF applications.
The tipping point and the tidal wave
WisdomTree said in the filing, “The bitcoin market has matured such that it is operating at a level of efficiency and scale similar in material respects to established global equity, fixed income and commodity markets.”
Wisdom Tree pretty much summed up the tipping point and could be the spokesperson for the rest of the institutional market. Meanwhile Valkyrie has filed a bitcoin spot ETF application with rumors of Fidelity doing the same. Volatility Shares was approved by the US SEC for the first ever leveraged bitcoin ETF.
ETF filings In summary (the last week of June 2023)
- Blackrock
- Wisdom Tree
- Invesco
- Bitwise
- Valkyrie
- Volatility Shares (approved)
This tidal wave of ETF applications could lead to a multi trillion-dollar tidal wave of capital flowing into bitcoin.
Friction removal
These ETFs offer investors exposure to bitcoin via traditional investment vehicles without having to figure out exchanges and wallets. Every major brokerage service is likely to offer one or more bitcoin spot ETFs considering the number of applications in the pipeline. The institutional investors get their compliant on ramps and newbie retail investors have no friction for getting into bitcoin albeit a derivative of the real thing. This is where the double edge sword comes in especially with retail investors. Financialized bitcoin defeats the ethos of monetary sovereignty and self-custody. This makes centralized exchanges look like self-custody in comparison.
Side note
Investing in bitcoin directly and controlling your assets is not that hard if you have the right educator which is the premise of cryptobullseye.zone. Contrary to some startups, twitter and other chatter, we don’t need to fully abstract away and dumb down the crypto experience because it’s supposedly so hard to navigate. User experience should continue to be improved for sure, but we don’t have to go back to the username and password experience just because people are familiar with it. Legacy logins are flawed and insecure and Web3 navigation is awesome so you just have to experience it. The EFTs will make it too easy for noobies to choose a familiar investment project over getting into bitcoin directly. This is the troubling part of the equation. We’ll see how this shakes out.
Other indicators
Meanwhile, EDX Markets, a cryptocurrency exchange backed by major Wall Street players Citadel Securities, Fidelity and Charles Schwab, officially launched in June 2023. Legacy financial players are getting into the game in numerous ways all amid the US SEC regulatory crackdown. Instead of backing down with uncertainty they are moving full steam ahead.
Finally, Investment Bank Nomura says, "Our comprehensive study reveals that the majority of institutional investors surveyed saw a clear role for digital assets in the investment management landscape, and the benefits they can bring, such as greater diversification of portfolios.” Their survey of 303 investment managers with $5T under management suggests almost 90% of their clients are interested in investing in crypto.
By now everyone should be able to answer, “Should I get into cryptocurrency?”
It sure seems like a tidal wave is coming. One thing I’ve noticed during my 10 years in crypto is when bitcoin goes up the rest of crypto goes up like a rising tide which makes sense considering bitcoin’s market domination. Eventually all crypto will become more uncorrelated, but in the meantime a flood of capital pouring into bitcoin means ether (ETH) and all the other altcoins will explode.
And remember,
