Cryptocurrencies

Slowly For Now, ETFs Are Making Bitcoin a ‘Conservative’ Investment

After nearly 10 years of failed applications, we saw a flurry of Bitcoin spot ETFs flooding the market in 2024. So far, it seems that the impact of the ETFs was not just to live up to the hype — but even trigger a radical shift in the collective evaluation of Bitcoin’s risk profile.

The market had good reasons to think this batch of ETF applications might have gone through in advance, but their effect on the market was unknown. The hype was undeniable, but there were still reasons to be cautious. Critics could have argued that institutions were already quite active on Bitcoin, and could already use futures ETFs — they just didn’t necessarily want to.

A few months in, the results are clear. Substantial ETF flows have been one of the primary drivers of the current run up in BTC price, pushing it past its previous all time high.

In a short span of a little over two months, Bitcoin spot ETFs have collectively reached over $57B in Assets Under Management (AUM), or about 830,000 BTC. To put this in perspective, the largest known holder of Bitcoin is Satoshi at around 1.1 million BTC. The 4 largest Bitcoin addresses holding over 100,000 BTC, which are cold storage wallets of known exchanges, still hold less Bitcoin than the ETFs.

A change in perception?

The purpose of a Bitcoin ETF is to let large asset allocators easily access Bitcoin, by wrapping it in a familiar structure that guarantees security and regulatory compliance.

By itself, creating an additional way of buying an asset doesn’t mean that more people will necessarily do it. 

Here, it’s the procedure surrounding the creation of the ETF that makes all the difference. The approval by the Securities and Exchange Commission can be a powerful signal for more risk-averse individuals and institutions. 

We can see the early innings of this transformation in several key events. One is the recent news of Fidelity Canada adding Bitcoin ETFs to their “conservative” portfolios for investors, right alongside bonds and stocks. While the allocation is small, it is still a major sign of a growing acceptance of crypto asset ownership even among the most traditional of institutions.

It’s not just about trading and holding assets: some traditional institutions are beginning to support Web3 infrastructure as well. This is the case of Laser Digital, the digital asset subsidiary of Japan’s largest investment bank, Nomura Group. Recently, it announced a partnership with Pyth Network to become one of its data providers. Pyth Network is an oracle provider that supports over 50 blockchains. The project offers a crucial infrastructure link, especially for any crypto projects joining the real world to Web3 and decentralized finance.

Could the trickle turn into a cascade?

Bitcoin daily ETF flows have skyrocketed to more than $1B daily, from an average of $200M per day, after the asset reclaimed its all-time high.

It’s undeniable that price gains beget price gains, and this self-reinforcing action could turn sour once the price growth plateaus or reverses.

However, the overall backdrop for Bitcoin could not be more interesting for the coming years. On one hand, we have a flurry of “crypto-native” price triggers, such as the halving. Set to occur in April, this would reduce the daily emissions of BTC in half, thus reducing some of the inherent selling pressure. The narrative surrounding the event has been quite strong, and the crypto markets rallied without fail before and after each halving. Ordinals and promising Layer-2 solutions also reinvigorated some of the technological offering of Bitcoin.

As for the next step, bulls often point to flipping the market cap of gold. With Bitcoin currently at $1.4T as gold sits at $14T, this result seems definitely reachable — a 10x is not unthinkable in particularly favorable conditions.

But those conditions would need to most likely include entire nation states adopting Bitcoin for their reserves. While El Salvador did so a few years ago, their Bitcoin holdings are comparatively small, and nobody else followed them just yet.

But we still might get to see copy cats. The geopolitical landscape is shifting before our eyes, and in a world where multiple centers of power potentially enter a new cold war, a truly neutral reserve currency might not be the craziest thing to adopt. It won’t happen overnight — but we’re already seeing the first signs of true acceptance of Bitcoin.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Nikolai Kuznetsov

Nikolai Kuznetsov is a financial analyst and professional trader. Based in Israel, he has been trading in multiple markets and educating traders as a teacher and mentor. Nikolai has extensive experience in stock market analysis, investment research and in various assets such as cryptocurrencies, FX, commodities, equities and bonds. In the last decade, Nikolai has devoted his energy and skillset to the crypto market, contributing analysis pieces, trade commentaries and op-eds to publications such as Cointelegraph, Forbes, TheNextWeb, and Investing.com, among others. He also holds a black belt in Brazilian Jiu-Jitsu.

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