💡 Bitcoin ETF: buy the rumour, sell the news?

GM everyone. This is 2036. We scroll for gems all day so you don’t have to.

Here’s what we’re serving up today 🍲: you may have heard the saying: ‘buy the rumor, sell the news.’ If that applies to the bitcoin ETF… should you sell bitcoin when it gets approved?

Let’s dig in.

Two weeks ago, news emerged that the SEC had approved Blackrock’s Bitcoin ETF.

We didn’t know it then, but it was fake news. In the meantime, the market ripped.

Since then, bitcoin has gone one way: UP 📈 Last night, it flirted with $36,000.

We know a Bitcoin ETF will probably be approved in the next ∼70 days. 

So, can we expect all the gains to be made before the ETF approval? Is all the wealth frontrunning the trade only to dump bitcoin once the ETF has been approved?

Let’s have a look…

1/ A bitcoin ETF means passive investment funds (retirement accounts, 401Ks, etc.) will gradually buy bitcoin over time.

Today, baby boomers hold 62% of US wealth.

But only 8% of these folks own crypto (versus 25% for adults under 49).

These people don’t trust anonymous Twitter accounts with pictures of bored monkeys.

In fact, most people don’t. Of the 88% of Americans who have heard of crypto - 75% don’t feel confident enough to invest.

But Fidelity, Blackrock, and the other big brands entering the space will change that.

These financial giants will put all their marketing power behind the new Bitcoin ETFs.

This will open the crypto space to investors who have no way of getting in today.

Initially, retirees will opt to own bitcoin individually. But eventually, target date funds and other retirement funds will own a fixed amount of bitcoin as a % of their assets.

That’s how gold works today. A consensus diversified portfolio of uncorrelated assets holds 5-15% gold.

And bitcoin is better than gold in every way.

Our assessment: not priced in.

2/ Traditional asset managers & fiduciaries (hedge funds, insurance companies, endowments, sovereign wealth funds, etc.) will start allocating to bitcoin.

Today, big-shot investors have no way of owning bitcoin easily.

Eventually, however, many will need to hold it out of obligation. It will be a part of their mandate.

Some will want to own it as a hedge against falling bond prices or inflation.

And others - notably hedge funds - will bet on it for its price performance.

For that, they need to be able to:

• borrow money to buy bitcoin

• borrow money against their bitcoin position

• take heavily concentrated bets on bitcoin (e.g. 40% of their total portfolio)

…i.e., all things they cannot do today but will be able to do with a bitcoin ETF.

Many willing investors are sitting on the sidelines out of regulatory obligation.

But a Bitcoin ETF will be their gateway to crypto.

Our assessment: not priced in.

3/ Companies will store part of their cash/treasury in bitcoin.

Today, a few companies already own bitcoin on their corporate balance sheet.

Tesla and Microstrategy are good examples.

Yesterday, Microstrategy announced their latest earnings. In Q3, they made $129M from their operating business and $900 million from their bitcoin holdings.

Eventually, a lot more companies will own bitcoin on their balance sheet as a hedge against a debasing currency or a store of value.

The bitcoin ETF (combined with new accounting rules for bitcoin) will make this 100X easier.

Our assessment: not priced in.

Up until today, the increase in the price of bitcoin has come from:

• retail investors like you and me

• a handful of large institutions and companies who went out of their way to buy bitcoin.

But most investors - wealthy Boomers, large institutions, and companies - have not been able to participate at all yet.

The nature of bitcoin makes it impossible for them to buy before the ETF approval.

That means the ETF approval is just the beginning of a multi-year increase in bitcoin inflows.

And eventually, Bitcoin’s price will reflect its new status as an easy-to-access asset 📈.

Today, Bitcoin is a ∼$700 billion asset class.

But assets managed by broker-dealers, banks, and RIAs alone are a ∼$49 TRILLION market.

You’re early. Enjoy the ride. We’re just getting started.

1/ Safemoon executives charged with fraud

2/ GBTC discount narrows to 23-month low

3/ SBF’s trial is nearly over