While Bitcoin bears argue on the spot bitcoin BTC
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An exchange-traded fund deal is “done,” but two key elements are missing, according to analysts at research and brokerage firm Bernstein.
The debate over Bitcoin ETF trading centers around initial allocations led by retail investors, with institutional involvement limited to basic “cash and carry” transactions rather than net long positions. This means that ETF flows are not “real.” Gautam Chhugani and Mahika Sapra wrote a note to their clients on Tuesday.
Bernstein analysts noted that institutional holdings in the spot Bitcoin ETF were only 22%, according to a recent 13F filing, and agreed that the increased liquidity in the CME Bitcoin futures contract since the ETF’s launch was evidence of basis trading.
But Chhugani and Sapra wrote that what’s missing from the downside is that Bitcoin ETFs are “on the verge of approval” by major financial institutions and large private banking platforms in the third or fourth quarter of this year, which could This reflects the recent views of Bloomberg ETF analyst Eric Balchunas. and Bitwise CIO Matt Hougan.
Berstein analysts argued that institutional-based trading was a “Trojan horse” for adoption, and these investors are now evaluating “net long” positions as they become accustomed to improved ETF liquidity.
Here, basis trading refers to the goal of institutional investors arbitraging the difference between spot and futures prices to buy Bitcoin spot ETF and sell CME Bitcoin futures contracts to profit from the price spread when the futures contract expires. It means a strategy of .
“We believe that ‘fundamental trading’ is primarily driven by hedge funds and accounts for 36% of institutional allocations. However, our conversations with investors interested in Bitcoin ETFs suggest that the next step after a basis trade is to evaluate a ‘buy’ position,” the analysts said.
“Also, the allocations associated with financial advisors are a real demand, with their 13F disclosures showing that most are small to mid-cap advisors with 0.1-0.3% of their portfolios allocated to Bitcoin ETFs. We believe that growth will be driven by large advisors endorsing ETFs and significant allocation headroom within existing portfolios,” he added.
Another factor is the growing adoption of Bitcoin as a treasury reserve asset. New FASB guidance makes it easier for companies to keep assets on their balance sheets by accounting for mark-to-market gains as well as impairment losses. “With MicroStrategy and Bitcoin miners currently driving demand, we expect new growth in demand from corporate treasuries in 2024. Recently, Block announced monthly Bitcoin purchases with total profits tied to Bitcoin for the next 12 months,” Chhugani and Sapra said.
Bitcoin ETF ‘isn’t over yet’
The U.S. spot Bitcoin ETF is currently experiencing four consecutive days of net outflows totaling $714.4 million, and with an additional $154.4 million coming out of funds on Tuesday, Bernstein analysts expect net inflows to accelerate again. We expect it to start.
“We expect Bitcoin ETF inflows to accelerate again in the third quarter, with the current choppy market providing a new level of entry before the next round of institutional demand recovers. Tactically, the $60K low mid/$50K high (if it gets there) would be an interesting entry point,” they said.
$60,000 is the new $10,000 in Bitcoin.
Last week, Chhugani and Sapra, modeling the marginal cost of production of a spot Bitcoin ETF and Bitcoin miners, predicted that Bitcoin would be available by the end of 2025, driven by expectations of unprecedented demand. The target price was increased from $150,000 to $200,000. Ultimately, analysts aim for Bitcoin to reach $500,000 by the end of 2029 and $1 million by 2033.
Bernstein analysts reiterated this goal to clients today, saying that Bitcoin’s current price range of $60,000 is equivalent to the price below $10,000 in June 2020 at the same interval following the Bitcoin halving.
Analysts added that while Bitcoin has seen a significant 53% gain from around $42,000 at the start of the year, it may still be early in the cycle.
“This change brings visibility to the institutional demand driven by ETFs and an organized marketing push from major asset managers. For example, Blackrock, which has $20 billion in AUM for its Bitcoin ETF, sees an opportunity and is likely to see visibility into a potential $80. – 100 billion cryptocurrency businesses over the cycle,” they wrote. “We believe asset managers have every incentive to put more effort into marketing and distribution to expand their cryptocurrency businesses.”
Gautam Chhugani maintains long positions in various cryptocurrencies.
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