“Be careful what you wish for. You may just get it”. This is an apt metaphor for the SEC’s approval of ETF launches by Wall Street’s best and brightest (biggest/meanest) fund houses from BlackRock to Fidelity, Invesco to WisdomTree.
It does not surprise me that Bitcoin fell from $47,000 to $42,600 now because buy on the rumour, sell on the news is a recurrent theme on Wall Street. Coinbase and Microstrategy had been double baggers since last June as $14 billion of new money came into Bitcoin anticipating SEC approval of multiple tracker products.
In any case, the Powell Fed’s U-turn on higher for longer interest rates at the December FOMC triggered the mother of all risk rallies in Bitcoin in Q4. Bitcoin status as a $900 billion marginal alt asset will not dramatically change overnight. Compliance in the world’s biggest bank owned financial advisory platforms, let alone pension funds and insurance companies will ensure that only a miniscule share of assets are allocated to Bitcoin, given its psychotic volatility and lack of intrinsic value relative to conventional capital markets instruments.
The Greater Fool Theory can be highly profitable in a momentum driven frenzy but loony tune bull markets always end in tears as Bitcoin has proven with a vengeance in the crypto flameouts of 2018 and 2022. Scandals like FTX, Binance, Luna et al have not exactly reassured institutional/compliance risk managers that crypto is a credible asset class for pension fund money and it is far too thinly traded to handle institutional capital flows for the moment.
This may change over time as the crypto ecosystem evolves but the permabulls waiting for $500,000 on Bitcoin may have to wait for several lifetimes unless America is headed for civil war and hyperinflation now that Trump has won the Iowa primary and is certain to win the GOP nomination for President.
If Neil Armstrong’s walk on the moon was one small step for man, one giant leap for mankind, the SEC’s approval of the ETF is one small milestone/step for Bitcoin but one giant leap for Coinbase. Which is now the world’s largest, best regulated crypto exchange. This is why I thought its shares were a beauty last June and prefer to accumulate it on every dip as my proxy for the growth potential of digital assets. Coinbase trading, custody and asset management ecosystem can only benefit from the launch of the new ETFs and greater retail investor participation in crypto.
The bear case is that investors will opt to use ETFs rather than trade tokens, paying nosebleed commissions and being on the wrong end of the bid/offer spreads, which is hardly a tailwind for Coinbase though it will win a lot more custody accounts due to the ETFs. Coinbase shares were grossly inflated at 156 when Gary Gensler was forced to reluctantly approve the Bitcoin ETFs by the courts and Wall Street lobbyists. The SEC still insists that Coinbase is operating an unregistered securities exchange. Stay tuned.
Also published on Medium.
