The recent moves in bitcoin have been turning heads in the crypto world as well as on wall street, and for good reason. The recent application for a spot bitcoin ETF by industry juggernaut BlackRock (BLK) could vault bitcoin prices substantially higher. Here’s why:
Let’s begin with the regulatory landscape that is setting the stage for all of this. SEC Chairman, Gary Gensler, has been aggressively going after nearly every exchange and cryptocurrency project in the past few months. Despite all these attacks, he has publicly stated that bitcoin is the ONLY crypto asset that is a commodity. There is no regulatory clarity with any other cryptocurrency project. With this definitive clarity, bitcoin is going to be the go-to for those looking for crypto exposure as well as those who wish to stay away from any crypto’s with potential regulatory entanglements. With Gensler’s comments as well as the BlackRock application for a spot bitcoin ETF, prices have surged nearly 28% in just 5 trading sessions!
The next contributing factor to a massive bull pump in bitcoin by the end of the year is supply. If the BlackRock application is successful, they are going to need to buy physical bitcoin, and a LOT of it! There’s just one problem: There isn’t a lot available to buy. Out of the 19,412,081 bitcoin currently in existence, only 1,850,000 are on exchanges. To buy bitcoin, BlackRock is going to have to find sellers. Remember, this will be a spot ETF, which means that it will actively hold actual bitcoin. This is very different than the current bitcoin ETFs on the market like ProShares Bitcoin Strategy ETF (BITO) or Valkyrie Bitcoin Strategy ETF (BITF) which are composed of Bitcoin Futures contracts and hold no actual bitcoin. The only thing that comes close is Grayscale Bitcoin Trust (GBTC), which is a trust and trades very differently than an ETF. GBTC holds around 626,000 bitcoin. I imagine the demand for BlackRock’s, or any other spot bitcoin ETF, is going to be substantial. Let’s just assume that demand is high, and BlackRock ends up trying to buy 626,000 bitcoin like GBTC. Where are they going to get it? The vast majority of Bitcoin, including all of my mine, is not held on an exchange. This means that it is not part of the liquid supply. Perhaps they look to industry whales who are holding large quantities of bitcoin and buy directly from them. The US Government is currently sitting on roughly 170,000 Bitcoin. Given the size, power and connections of BlackRock, there may be a deal to be made there. Perhaps they buy from Block.one or MicroStrategy (MSTR), who each have about 140,000 Bitcoin on their books. This is a highly unlikely scenario as both entities are vocal about holding for the long haul. It is going to be difficult to fill the coffers with enough actual bitcoin to meet demand. This massive new demand, and shockingly low liquidity, is going to significantly drive prices up. It’s just basic supply & demand mechanics. Finance 101.
The real question is: Will BlackRock bitcoin ETF application get approved? To date, there have been over 30 past filings for a spot bitcoin ETF, and every one of them has been denied by the SEC. It has become so frustrating that companies like Greyscale have filed a lawsuit against the SEC for preventing a spot bitcoin ETF from happening.
Many suspect that this time will be different. BlackRock is no stranger to the ETF process. They have filed applications with the SEC 576 times over the years. Out of the 576, only 1 was denied. 1! This gives BlackRock a winning percentage of 99.93%. I’ll take those odds.
At the end of the day, a lot of this will come down to power. Years ago, we used to call Goldman Sachs (GS) “Government Sachs”, due to their corporate tentacles intertwined with nearly every government agency, office and official. This gave them a significant competitive advantage at the time. Just as every dog has its day, Goldman slid, and a BlackRock took over as the king of Wall Street. A BlackRock spot bitcoin ETF approval would raise a whole new set of questions for the SEC to answer regarding preferential treatment. Either way, a spot bitcoin ETF is coming, likely by the end of the year. Perhaps multiple ETFs. Whoever finally wins approval is going to face a daunting task of procuring enough bitcoin to back customer acquisitions of said ETF. This will most likely cause bitcoins price to rise significantly. The next major supply of $45,000 for bitcoin would be a logical target should we see a spot bitcoin ETF approved. That would be a 50% jump from current levels. The first deadline for the SEC in this application process will be August 12th. This could be a glorious day for the crypto world. For the true HODLers like me, the spot bitcoin ETF is just another step in the direction of bitcoin legitimacy and adoption. From there, the real price climbs will begin.
On the date of publication, Merlin Rothfeld had a position in: ^BTCUSD . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
