The timing of the BlackRock news this month was a surprise even to those of us that follow these markets closely, but their interest in a bitcoin ETF was certainly not unexpected.
BlackRock’s SEC filing is a strong bullish signal. It’s a clear sign of both the demand for crypto assets and a recognition among the world’s largest asset managers that this asset class is here to stay. This news wasn’t, however, a one-off or isolated event. As we noted in our 2023 outlook and in recent articles, the adoption of crypto assets has been steadily accelerating over the last few years—a secular trend that continues.
But it’s hard to look at the influx of recent news and not appreciate that this trend is picking up steam at an increasingly fast pace. For example, just last week:
Fidelity, Invesco, and several other asset managers filed for their own bitcoin ETFs.
Bloomberg's Senior ETF Analyst estimated a 50% chance of a bitcoin ETF being approved due to BlackRock's “holy grail” filing.
Deutsche Bank, the largest bank in Germany and 8th largest in Europe, applied for a license to offer crypto custody services.
EDX Markets, a crypto exchange backed by Citadel, Fidelity, and Schwab, launched.
BNY Mellon, the oldest US bank, confirmed its commitment to the digital assets space, including custody, clearing, and tokenization initiatives.
Bitcoin rallied above $30,000 for the second time this year.
And we also had a realization from the chair of arguably the most influential institution of them all—the Federal Reserve—who stated publicly that crypto “appears to have staying power as an asset class.”
Beyond last week, there have been other significant recent announcements that help confirm the thesis that institutional adoption of crypto is moving fast. Franklin Templeton launched a money market fund on the Polygon network (the first US-registered mutual fund to use a public blockchain to process transactions and record share ownership), a16z Crypto—the world’s most important crypto investor—announced its first international office in the UK, and established Wall Street firms, including Standard Chartered and Nomura, are reportedly building crypto trading platforms to attract fund managers and institutional investors.
We think it’s very clear that, like Chair Powell, institutions have recognized that crypto is an asset class that is here for the long haul. A recent report from Coinbase shows that more than half of the Fortune 100 are developing blockchain initiatives to stay competitive. And more than 80% of the Fortune 500 executives surveyed for the report say their companies have current crypto initiatives or are planning them.
Fortune 100 Companies: Crypto/Blockchain Investments by Category
Source: Coinbase, The State of Crypto: Corporate Adoption and The Block Pro Research, 2023
So, what does this broad institutional interest mean for individual investors that want exposure to this asset class?
In short, we may be at a generational moment in time for individual crypto investors. The current institutional interest we are witnessing is far from the opportunistic FOMO we have seen in the past that can push prices up in the short term. These institutions move slowly and deliberately and invest for the long term—once they are in, they are in.
We currently believe crypto is still far below its long-term “fair” value trend, but this could change as a flood of institutional money comes in through ETFs and other means. One way we have measured this is by using a logarithmic regression to assess the market capitalization growth of crypto assets. Network effects drive demand for crypto assets and have more explosive growth early on, then are followed by diminishing growth rates as the asset class matures. To derive a fair value trend, we can look at a logarithmic regression of the combined market cap of Bitcoin and Ethereum from inception through 2022.
Logarithmic regression for the market capitalization of BTC + ETH
Source: Hashdex Research with data from Glassnode (fitted to data until the end of 2022).
While crypto has soared by around 70% in 2023, 1the long-term logarithmic growth of the market capitalization of BTC and ETH suggests that the two crypto blue-chip assets are still far below their long term fair value trend. This is a story we’ve been sharing with our clients and financial advisors for much of this year. That is, individual investors currently have an incredible opportunity to invest in an asset class that may soon be dominated by the world’s largest institutions.
For bitcoin specifically, it’s also important to remember that its illiquid supply is outpacing its rate of new supply issuance. With the next halving set to take place in April/May of next year, this trend will be accelerated on top of the institutional demand that is surfacing.
Bitcoin returns between each halving and the next ATH
Source: Hashdex Research with data from Glassnode.
In other words, things are changing and they are changing fast.
While it might be easy to look at crypto’s significant returns this year and the regulatory uncertainty swirling around the industry in the US and think current prices might not be an ideal entry point, we think all the signs are pointing in the opposite direction. That is, the combination of positive long-term trends and shifting cyclical forces is presenting a once-in-a-lifetime, generational opportunity for long-term investors.
As the Fed chair said himself, crypto isn’t going anywhere. The BlackRock filing and other recent institutional announcements are acting as accelerants for a fire that has been burning bright for some time. The staying power of this asset class is at an all time high and growing, and we are as motivated as ever to give investors simple and regulated access to this emerging asset class.
 Nasdaq Crypto Index data, as of June 28, 2023
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