Commencement of Bitcoin ETF Competition: Is Institutional Confidence Re-established in the Cryptocurrency Market?

Seven prominent institutional firms in the United States have submitted applications for a spot Bitcoin exchange-traded fund (ETF), including BlackRock, the world’s largest asset manager. This development has generated optimism and led to an upswing in Bitcoin prices.

We did an article on Blackrock here. 

Leveraging a Cointelegraph piece, this article will explore the inflows of institutional investment into Bitcoin and the wider cryptocurrency market and its potential impact. 

As the Bitcoin halving event approaches within the next year, several major financial entities have pursued spot Bitcoin ETF applications, a trend reminiscent of the period before the bullish market surge observed from 2020 to 2021.

During the cryptocurrency winter of 2022, institutional interest in the sector dwindled as key players such as FTX faced setbacks, and cryptocurrencies, including Bitcoin, experienced mostly sideways movement amid increased regulatory scrutiny of cryptocurrency exchanges.

Some of these other black swans included LUNA/UST crash, 3AC, Celsius, BlockFi, Genesis, DGG, BUSD flipping over, Silverbank, SVB, USD scare, a Hawkish SEC, Kraken, Binance, Coinbase all sued by the SEC, and many more. 

However, the tide shifted when news broke that notable financial institutions like BlackRock, Fidelity, and Valkyrie were filing spot Bitcoin ETF applications. As a result, the price of Bitcoin surged above $30,000, reigniting investment interest in the crypto market. Its current pricing it is ranging around is roughly a 100% push from its November, 2022 low. 

While various institutional giants have previously filed spot Bitcoin ETF applications with the United States Securities and Exchange Commission (SEC), these applications were either withdrawn or outright rejected by the regulatory body.

In October 2021, the SEC approved the ProShares Bitcoin Strategy ETF, the first Bitcoin futures ETF, which launched on the New York Stock Exchange. Nonetheless, the filing of a spot Bitcoin ETF by BlackRock, a leading asset management firm, has bolstered the likelihood of the SEC granting approval for the first spot Bitcoin ETF. Bloomberg senior ETF analyst Eric Balchunas estimates BlackRock’s chances of approval at 50%.

The recent wave of ETF filings commenced with BlackRock’s application on June 16, followed by WisdomTree, Invesco, and Valkyrie in subsequent weeks. On June 28, ARK Invest, which had previously filed for a spot Bitcoin ETF in June 2021, revised its filing to align with BlackRock’s approach. The following day, asset manager Fidelity Investments also filed for a spot Bitcoin ETF. To date, a total of seven institutional giants have submitted applications for a spot Bitcoin ETF.

Essentially since this plethora of filings have come in, Bitcoin is up 24% in 3 weeks.

Some experts in the industry predict that the years 2023 to 2024 will be critical for securing approval for a spot Bitcoin ETF. Robert Quartly-Janeiro, the chief strategy officer of the cryptocurrency exchange Bitrue, emphasised the favourable timing, citing rampant inflation, varying money supply dynamics, high interest rates, and solid business revenues as factors that make cryptocurrencies performance vital in an economic environment focused on inflation and interest rates.

Additionally, Larry Fink, the CEO of BlackRock, recently expressed support for cryptocurrencies while BlackRock applied for the listing of a Bitcoin exchange-traded fund (ETF) in the US.

During an interview on Fox Business on July 5, Fink stated that cryptocurrency essentially serves as a digital form of gold. He urged US regulators to consider the potential democratisation of finance through a Bitcoin ETF. 

Fink, known for his commentary on significant crypto-related events such as the FTX collapse in 2022 and the growing interest in BTC, emphasised that Bitcoin is an international asset not tied to any specific currency, making it an appealing alternative investment.

“The role of crypto is digitising gold… Instead of investing in gold as a hedge against inflation, a hedge against the onerous problems of any one country or the devaluation of your currency… Let’s be clear: Bitcoin is an international asset,” said Fink. “It’s not based on any one currency, and so it can represent an asset that people can play as an alternative.”

Given Fink’s role as the CEO of the world’s largest asset management firm with over $9 trillion in assets under management as of April, his favourable stance on cryptocurrencies could have a notable impact both within and outside the crypto space.

You can view the video below:

Bitcoin has weathered the aftermath of 2022 remarkably well and recovered more than half of its price decline during the bear market, largely thanks to the continued interest of institutional investors in the asset.

Undoubtedly, the presence of institutional investors in the crypto market has grown significantly over the past year. Until 2022, institutions maintained a cautious approach and even MicroStrategy ceased its regular Bitcoin purchases.

However, with the market picking up pace, Saylor and MicroStrategy continue to bolster their Bitcoin holdings, particularly in light of the potential wider institutional investment that could hit the Bitcoin market.

MicroStrategy has acquired an additional 12,333 BTC for ~$347.0 million at an average price of $28,136 per #bitcoin. As of 6/27/23 @MicroStrategy hodls 152,333 $BTC acquired for ~$4.52 billion at an average price of $29,668 per bitcoin. $MSTR https://t.co/joHo1gEnR0

— Michael Saylor⚡️ (@saylor) June 28, 2023

And maybe Michael’s strategy has been a lot more solid than what people lead you to believe:

Particularly for those Bond investors:

Numerous other prominent funds and companies have developed an interest in cryptocurrencies and are actively assessing their investment potential.

Despite the inherent volatility of the market, global institutions continue to display consistent interest in cryptocurrencies. Paolo Ardoino, the chief technology officer of Bitfinex, highlighted to Cointelegraph that Bitcoin holds immense value due to its utility and distinctive characteristics as a truly limited asset that cannot be devalued.

He said, “The most traditional financial institutions recognise that,” adding, “It’s hardly surprising that at a time of record inflation in both major industrialised economies, as well as emerging markets, that the value of Bitcoin is being better understood by markets.”

“The recent new applications for Bitcoin spot market ETFs by some of the world’s most important asset managers demonstrates that there is investor, as well as issuer demand for Bitcoin, and that will only intensify. Apart from demonstrating increased institutional demand for Bitcoin, it will also attract new retail investors and encourage broader participation,” Ardoino stated. 

In the past year, numerous institutions chose to maintain a distance from the cryptocurrency space, largely influenced by the negative public image resulting from the FTX scandal, compounded by banking system failures.

Richard Gardner, the CEO of Modulus, explained to Cointelegraph that institutions anticipated the turbulence within the cryptocurrency industry and opted to adopt a cautious approach, avoiding any political or public backlash following the FTX incident. Their strategy involved waiting for a more opportune time to re-evaluate their stance, considering the potential resurgence of the cryptocurrency market.

“We’re at the point where they’re beginning to weigh the risk versus reward of stepping back into the fray. Most institutions will likely be far more cautious, given the FTX disaster. They’re going to largely be moved based on the regulatory environment. As governments cobble together a full regulatory regime, and as bureaucrats decide how they plan to interpret the law, institutions will gauge their response and move forward accordingly,” Gardner asserted. 

While the retail interest drove the 2017 bull run, the surge observed from 2020 to 2021 was propelled by institutional inflows, exemplified by prominent companies like MicroStrategy and Tesla, along with several other publicly-listed firms, adopting Bitcoin and incorporating it into their balance sheets.

According to Gracy Chen, the managing director at Bitget, institutions are poised to respond swiftly once they witness “stable and predictable retail interest.” Chen emphasised that the cumulative impact of institutions surpasses that of individual investors, making them a significant driving force behind the expansion of cryptocurrency market capitalisation.

Chen further emphasised that the increasing interest from institutions has the potential to foster wider adoption of cryptocurrencies and serve as a catalyst for the next bull run. She stated:

“Analysts anticipate that the approval of BlackRock’s ETF application alone could potentially lead to a twofold increase in the price of Bitcoin. Given BlackRock’s extensive institutional investor base and influence, the approval of their spot BTC ETF would exert a substantial impact on the growth of the crypto market. With their BTC spot ETF application, it is likely to stimulate competition among relevant financial companies, channelling more funds from traditional markets into the realm of Web3.”

In addition to the institutional drive, noteworthy advancements have taken place in the retail market, exemplified by Hong Kong permitting crypto exchanges to extend their services to retail customers. 

Ben Caselin, the vice president at MaskEX, a cryptocurrency exchange, pointed out to Cointelegraph that in the previous bull run, “U.S. institutions played a significant role in fueling the upswing, but they may not have been fully prepared to engage in-depth and exhibited behaviour no different from retail investors, essentially pursuing gains and reacting to hype.”

“I expect this bull market to be Asia driven once again, perhaps with Hong Kong at the helm for the region, but based on my personal observations on the ground, I also expect a significant push to come from the Middle East, particularly from the United Arab Emirates, Saudi Arabia and other oil-rich jurisdictions,” he added.

We did an article on Hong Kong opening up here. 

Hong Kong’s plans to open up cryptocurrency trading are in line with the emerging global consensus, explaining, “different jurisdictions will adopt the right approach to their own market, and Hong Kong is no exception. We are an open market, so while different jurisdictions have different laws and requirements, we should base our actions on our strengths.”

Hong Kong’s shift towards cryptocurrency and fintech aligns with its reopening after enduring three years of stringent Covid policies, which resulted in international isolation and talent outflows. The city’s international business reputation suffered as Beijing tightened restrictions on political freedoms following mass democracy protests in 2019.

The announcement of new regulations for crypto exchanges has generated over 80 inquiries with Hong Kong’s investment promotion agency, according to the treasury chief. He noted that the return to normalcy is evident, stating, “One thing that has been very obvious is that Hong Kong is back to usual. We are back to business.”

Additionally, the United Kingdom has joined the ranks of nations that have implemented official regulations for cryptocurrencies and digital assets.

Despite having a considerably smaller user base compared to the United States, this proactive step by Great Britain and Northern Ireland positions them ahead in terms of acceptance and regulation.

We did an article on that here. 

And only recently has Australia joined the race somewhat, with the ASX’s Chief Information Officer, Dan Chesterman, stating that for a tokenised asset to be considered for listing in the future, it must be supported by appropriate backing. He emphasised that while this requirement is essential, there is a definite possibility of such assets being listed at a later time.

We did an article on that here. 

Despite US regulatory efforts standing in the way, it seems like globally the pace is picking up to regulate this special industry, which in-turn, will allow for further institutional investment to flourish. 

It still remains to be seen if the spot Bitcoin ETFs will be approved by the SEC, but if they are, this would be incredibly bullish for capital coming into the market. 

And as a result, the upcoming Bitcoin halving approaches in April 2024, the increasing attention from institutional investors is regarded as a positive indicator for the price of Bitcoin and the wider cryptocurrency market. 

Historical trends reveal that bull runs often commence leading up to the Bitcoin halving event, which occurs every four years and involves a halving of the BTC reward per block. This scarcity element contributes to a surge in price as both individual retail traders and institutional behemoths strive to expand their Bitcoin holdings.

Will the great race be on up until the Halving?

Only time will tell.