Bitcoin ETF: "Approval is clearly a turning point for the entire crypto industry"
After years of waiting and refusal, the US financial regulator has authorised the launch of the first Bitcoin ETFs. Philippe Lafaye, vice president of operations for quantitative fund Capital Fund Management, analyses the importance of this historic moment for the crypto sector.
American investors will finally be able to invest in bitcoin with ETFs from tomorrow. Why is this so positive for the sector?
We're entering a new era and there's plenty to be confident about. With ETFs, millions of savers will be able to invest with a simple securities account and behind that there will be physical purchases of bitcoins.
Many are anticipating a supply shock that could boost its price, particularly because of bitcoin's characteristics, such as the limit of 21 million units and above all a supply available in small quantities on exchanges (1.8 million bitcoins).
BlackRock, Fidelity, etc. The biggest names in finance will now be able to offer bitcoin. Could this have an impact on investor sentiment?
It's very likely, because we're talking about the biggest financial institutions on the planet. To attract customers to these new products, these companies will have to market and extol the qualities of bitcoin as an investment. That's where I see the biggest upheaval, even if I don't expect a paradigm shift immediately.
I'm looking at the long term: from now on everyone will be able to invest in bitcoin, even pension funds. With ETFs, there's no longer any need to worry about custody, and we know that this was one of the sticking points for many players. We have to realise that this seemed unimaginable just a few years ago. The approval of Bitcoin Spot ETFs is clearly a turning point for the whole industry.
Could the arrival of behemoths like BlackRock have an impact on traditional crypto players?
We should see a war around the players who will handle bitcoin custody - Coinbase is currently in pole position - but also on the Exchanges side. I also see an impact with the fees offered by ETF issuers: they are much lower than those of the exchange platforms, but also those charged by the issuers of the crypto ETPs that are already available in Europe (CoinShares, 21Shares, etc.). It's not impossible that some will re-evaluate their pricing policy downwards.
Actually, Bitcoin ETF fees are extremely low. How do you explain this strategy?
The aim of BlackRock and its competitors is to have as much money under management as possible in order to become the market leader, even if that means lowering fees as much as possible. Offering the lowest fees is the way to attract the most liquidity.
Will ETF issuers be buying bitcoin en masse to meet demand in the first few weeks?
I don't think this will be obvious, as I don't anticipate a rush into bitcoin. For the time being, the subject is not a priority for investors. And don't think that issuers are going to go to traditional exchange platforms. They are going to work with OTC (over the counter) desks and market makers in order to buy at the best price and without causing market fluctuations.
How is an ETF managed?
It's very simple, it works on the subscription/redemption model. Depending on inflows and outflows from investors, ETF issuers will have to buy or sell bitcoins on the market.
The aim is to ensure that the ETF's bitcoin composition matches the value of the financial security being sold. The fees applied by the issuers are applied each year from all the funds under management (between 0.2% and 1.5% depending on the issuer, editor's note).
How much inflow of liquidity can we expect in 2024?
It should be significant, it wouldn't surprise me if $50 to $100 billion arrives in cryptos this year. I'm very curious to see how bitcoin will react. If it goes the way of gold after the launch of the first ETFs, the price should rise sharply.
The consequence is that the arrival of sophisticated players on the market could make bitcoin trading more complex and some people's convictions could be sorely tested.
Does this mean that we should consider a fall in the price?
We'll take stock in a month's time when we have the data on the influx of cash arriving in ETFs. Nevertheless, we should also remember that all the big institutional news (bitcoin futures contracts on the Chicago CME in December 2017, Coinbase IPO in April 2021, spot futures contract in November 2021) have often coincided with market peaks.
A drop would, in my view, be quite healthy because bitcoin has risen enormously in recent months as a result of the hypothetical arrival of ETFs. This would be an opportunity to get back on a sounder footing before aiming for higher highs. Other events could then support the price, such as the halving of bitcoin, which has never been bad for the sector.
If ETFs become popular, isn't there a risk that a large proportion of the bitcoins in circulation will be cornered by their issuers?
It's likely that a large quantity of bitcoins will be managed by the ETF issuers, but there will be several of them, which limits the control of a single player. On the other hand, they will all be under the supervision of the US administration, which may pose other problems.
I think the criticisms are legitimate, but it's nothing new to see certain institutional players holding a lot of bitcoins. Grayscale has 622,000, MicroStrategy has nearly 200,000, etc.
Now that the Bitcoin ETFs are here, what can we expect from further institutionalisation?
It's possible that the Ethereum ETH narrative will take over. With the validation of Bitcoin ETFs, this paves the way for ether to be approved for this type of product, as applications have already been filed along these lines, notably by BlackRock.
In recent weeks, we have begun to see certain whales (large portfolios, ed. note) on Bitfinex (an exchange where many historical investors are concentrated) cutting their "long" positions on Bitcoin to switch to Ethereum.
Can we say that the new crypto bull run has begun?
I've done a lot of analysis of previous cycles and even if they're not identical, there are a lot of similarities each time. As far as the current market is concerned, I estimate that the bull run began in January 2023. So we've been in it for a year now. In this type of market, there are three phases.
The first probably ended when the $30,000 resistance was broken in October 2023. The second phase we are currently in could last between 200 and 300 days, with perhaps a market top around $50,000. I would then imagine a retracement to around $38,000 before starting phase three, which offers parabolic performance and is likely to start in the summer. This scenario is based on past performance, but we need to be aware that this cycle looks like being faster than previous ones.