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It’s All About the Instituional Interest
On June 15h, 2023, BlackRock’s iShares filed paperwork for a spot ETF which has since cemented focus on Bitcoin by investors seeking long exposure in the cryptoasset market while being somewhat hedged following the regulatory scrutiny for alternative assets in recent weeks.
BlackRock’s filing came at the perfect time too. BTC bounced off its 2023 support at ~$24.7k in need of some catalysed to maintain its constructive outlook.
I’ve maintained the growing probability of Bitcoin's relative outperformance over the past few months with Bitcoin’s dominance chart providing the clues.
The first sign was dominance remaining sticky below the key 50% level since April - a dynamic not seen since May 2021 when the orange coin rallies to its oscillating highs.
The second sign was the breakthrough above 50% on the week of the SEC’s charges against the two largest crypto exchanges, Binance and Coinbase including the offering of unregistered securities.
In other words, the collapsed appetite for Alt coins was the final catalyst the market was looking for to move all into Bitcoin.
The Unclear Timeline
So what now? Well, the SEC has a maximum of 45 days from the date of filing to publish a notice of the application in the Federal Register. A further 45 days can then be used for interested parties to submit comments followed by an additional 45-day period for responses to those comments.
One difference in BlackRock’s filing compared to historical Bitcoin spot ETF filings has been the inclusion of a surveillance-sharing agreement. Now other open filings have used this to copy the potential secret sauce and amended their application.
ARK amended their 19b-4 to include the agreement between CBOE and crypto exchange (Coinbase?). The SEC extended its decision deadline to August 30th 2023. The reason ARK is important is because they filed first whereby an approval/rejection of ARK’s filing will be telling of BlackRock’s filing.
It’s also unclear whether ARK can use Coinbase which has yet to actually enter into a surveillance sharing agreement. Maybe BlackRock has taken Coinbase into an exclusive.
Either way, we are likely looking at the end of August for some clear signs about these applications.
Since BlackRock’s filing, everyone and their grandma is now bullish on Bitcoin (BTC RVs are fully in vogue).
The Current State of the Market
What we have now though is BTC struggling to sustain above the $31k key zone despite players like Fidelity now re-filing.
When consensus feels overpowering, investors should begin to look for signs for the counter.
As I explored in my Bitcoin valuation research, one of the key drivers of BTC price action over time is broader market liquidity. There are several ways to measure this but let’s stick to US domestic and global net liquidity.
When both measures decline sharply, BTC faces an uphill battle for performance. This is the setup we have today for the near term (could it be the TGA refill is finally having an effect?).
One framing here with respect to Bitcoin spot ETFs is the approvals pave the way for accessibility (IRAs and saving accounts) while the liquidity represents the availability for ETF inflows. For a ‘loose analogy’, the ETF structures are the taps being built while liquidity is the water running through it.
There is still good evidence that points to liquidity growth by Q4 2023. Stimulus is around the corner for some of the largest economies. These near-term declines in liquidity may just be blips in a broader move higher. But these shorter blips can still have an impact on risk asset performance.
A near-term drawdown also doesn’t mean BTC isn’t maintaining its constructive momentum. A move to $27k (-12%) would still fit the model and also be above the 200d MA. But I’m sure it would throw a few investors off too.
We also have a consensus on Bitcoin's relative outperformance when dominance reached its highest RSI in over 3 years. This shouldn’t be surprising if the market is now pricing in the prospect of the largest asset manager globally filing for its first BTC spot ETF - a material development not seen in previous cycles.
However, Investors should still be cautious here, especially when ETF timelines are far from clear.
But let’s take the opposite conclusion - BTC bullishly diverges away from liquidity trends and it sustains above $31k - also entirely plausible given the gravitas of these ETF filings.
This would seem to indicate Bitcoin is being supported by new factors that outweigh liquidity momentum. This is entirely possible but the point being this would be a key data development in and of itself.
And why it’s important to highlight inflection points in the cryptoasset markets like this one. Either outcome is meaningful.
For right now though, with everyone’s focus on BTC outperformance from here, it’s more important to focus on the near-term risks the market may be de-emphasising or missing.
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