Bitcoin's $900 Billion IPO
The approval of 11 ETFs in the US is a watershed moment for the 15-year old asset
“I don't believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can't take them violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can't stop.”
Friedrich Hayek (video from 1984)
On January 3, 2009, the first block of the Bitcoin blockchain was produced in the middle of the Global Financial Crisis. The network grew over the years, strengthened by more and more users and miners joining it. The network was never hacked, never allowed a single malicious transaction to be approved, and survived state attacks, FUD (Fear, Uncertainty, Doubt), and the launch of tens of thousands of competing crypto assets. Then, on January 11, 2024, it made its grand debut on Wallet Street.
After years of stonewalling, the US Securities and Exchange Commission (SEC) finally approved not one but eleven Bitcoin spot Exchange Traded Funds (ETFs). The outcome was known the moment BlackRock applied for a Bitcoin spot ETF, as I explained back in July. BlackRock isn’t a company that messes around. It is the #1 asset manager in the world, with more than $10 trillion of assets under management, that’s $10,000,0000,000,0000. Its track record for ETF applications was 575 wins and just one rejection.
So, why is the approval of Bitcoin ETFs a big deal? Let’s invite my loyal companion, ChatGPT, to break it down for you.
ChatGPT got it mostly right for four out of five reasons. The diversification argument is incorrect because Bitcoin is the only crypto asset that can be held in US ETFs. Long story short: it’s a financial product that anyone with a brokerage account can buy. No need to create an account at a cryptocurrency exchange or worry about self-custody.
The market understood the significance of this event, and because the SEC took seven months to approve the ETF, there was ample time to front-run Wall Street. Between June 15, 2023, when BlackRock submitted its application, and the day of the ETF launch, the price of Bitcoin increased from $26,000 to $45,000, more than 70%.
In fact, retail investors had more than a decade to front-run Wall Street before an ETF was launched. The following table by BlackRock shows how Bitcoin has obliterated every other asset class in the past ten years.
The price for a 10-year annualized return of 124% was one few people were ready to pay: time and volatility. No asset like Bitcoin ever existed before, so you must spend time to understand it. There is no shortcut. Volatility is natural for a new asset class. It’s a feature, not a bug. The absence of volatility would actually be suspicious for an asset class that never existed before. The volatility is gut-wrenching and unbearable for many people. Just watch the Bitcoin experience of Barstool founder, Dave Portnoy.
If you haven’t done your homework yet, it’s never too late. There are a lot of resources available out there. Save yourself some time and start by reading The Bitcoin Standard by Saifedean Ammous. It was published in 2018 but remains the best book to understand Bitcoin.
When the Bitcoin ETFs launched, the market capitalization of Bitcoin was more than $900 billion, making it the 10th largest asset in the world.
Despite being the 10th largest asset by market capitalization, most investors and asset managers have zero exposure to it. It’s too bad, considering it’s been the best-performing asset of the past decade. Now, they finally have financial products to get exposure to it.
The last time an ETF allowed investors to access an asset previously unavailable was November 2004, when the GLD gold ETF launched. What happened next? The price of gold went parabolic.
Here is where things may get a bit more complicated for Bitcoin in the short term: Every time Wall Street launched financial products tied to Bitcoin in the past, it coincided with market tops:
CME Futures in December 2017
Bitcoin Futures ETF in October 2021
You can expect volatility to continue to be elevated in the coming weeks and months.
Not everyone was delighted by the launch of these Bitcoin spot ETFs. US Senator Elizabeth Warren, the self-appointed head of the anti-crypto army, reacted on X. But she was quickly community-noted.
Here is a chart setting the record straight.
After initially rising to $49,000 following the launch of the Bitcoin ETFs, the price of Bitcoin experienced a lot of volatility and settled at $43,000 on Friday, January 12. Counterintuitively, the crypto asset that benefited from the launch of the Bitcoin ETFs was… Ethereum (ETH), the second largest crypto asset with a market capitalization of about $300 billion. Why? Investors already have their eyes set on the next set of ETF launches…
Crypto assets are here to stay, and most people have no exposure to this market. I leave you with this one-minute clip from Larry Fink summarizing the case for Bitcoin. Act accordingly.