How soon is now?

Friday January 26th, 2024 - Issue # 60

(Any views expressed below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

Alright, I’ll admit it — despite the seasoned traders around me, veterans of the game who predicted that the ETF approval would only be a short-term peak were right…I was swept up in the euphoria. They're the wise ones, and here I am, just a guy at his kitchen table at 5 am, pondering the 'what ifs'. But let's be real, I'm not truly disheartened. In fact, my bullish stance on Bitcoin is as strong as ever. Reflecting on my mindset pre- and post-ETF approval reveals some interesting insights.

My excitement wasn't just run-of-the-mill; it was sky-high. Imagine me, strolling into the office like a non-inebriated version of Leo in "Wolf of Wall Street," declaring, “This is our Super Bowl!” The Tuesday fake approval drama was a plot twist that deflated our collective enthusiasm. Picture the scene: I'm in a meeting, the SEC's X account posts about the “approval,” and our office erupts as BTC prices soar, only to plummet shortly after as news breaks of the SEC's account compromise. No approvals, just chaos. It was a bizarre mix of humor and irony, a regulator known for overseeing market manipulation caught in a manipulation scandal. This fiasco drained the energy from an event a decade in the making.

When the ETFs did get the green light the next day, it was met with skepticism. The SEC's website blunder only added to the confusion. Our jubilation from the day before was replaced with hesitant cheers — it was real, yet somehow deflating. This episode was a stark reminder of how closely emotions and market dynamics are intertwined. Were these SEC blunders an orchestrated effort to temper the excitement? Maybe. But in the end, it's a victory. We now have multiple channels to attract capital from the world's most lucrative markets.

I’ve been vocal about my bullish stance on Bitcoin for over a year, and I stand by it — the upcoming year is poised to be monumental. Let's revisit the predictions from my November KISS letter:

• A 90% likelihood of multiple spot Bitcoin ETF approvals in the US within the next couple of months.

• The Bitcoin halving in April.

• Rate cuts and easing in the US as early as March — especially after the Fed announced this week that they would be ending the Bank Term Funding Program (BTFP) on March 11th (more on this next week).

• The looming US election.

Fast forward, and the landscape has evolved: 10 spot Bitcoin ETFs are now actively channelling capital in the US market. Despite significant outflows from GBTC post-conversion, which decimated the discount that traders were capitalizing on, the overall impact of the ETFs has been positively overwhelming.

The selling pressure from GBTC is intense, and amplified due to the brutal level of on-chain transparency. Tweets such as the one below have been an everyday occurrence since the ETFs started trading two weeks ago.

It’s actually pretty incredible that Bitcoin has stayed in its trading range with as much sell pressure that it has been facing. Aside from the fact that Grayscale with $27 Billion AUM in GBTC kept it’s fee at an egregious 1.5% vs. competitors like BITW who charge 130 basis points less, we learned this week that the FTX estate sold ~$1 Billion of their GBTC position.

Even with this tremendous, persistent sell pressure — when you net the outflows from GBTC against the inflows into the newly listed spot Bitcoin ETFs, the result is, as of January 24th, a net inflow of ~$745 million.

As many expected, investment giants BlackRock and Fidelity are crushing their competition. Click the chart below for an updated view of the BTC ETF race.

If you're still feeling bearish now, consider a different perspective on the ETFs:

Real change in the financial landscape is not an overnight phenomenon; it's a gradual process. The initial wave of excitement around Bitcoin ETFs has subsided, marking the end of the hype phase. Now, we're in the thick of a more prolonged, intricate phase — the integration of these ETFs into broker platforms, a process that spans several months. These instruments are not merely new investment options; they represent significant signals to the world of traditional finance and Registered Investment Advisors (RIAs). With each passing day, as these ETFs continue to operate, Bitcoin steadily cements its place as a viable asset in the mainstream financial ecosystem. Issuers, now equipped with these new vehicles, are in a prime position to introduce Bitcoin to their clients. However, this is not a simple task. It involves a series of extensive meetings and meticulous decision-making processes. We find ourselves currently in a pre-new-all-time-high (ATH) phase, a typically quieter period, even within a bull market. History has shown that the real surge in momentum often comes after surpassing previous ATHs, setting the stage for new, uncharted heights in market value.

TLDR: ETFs are planting seeds for future demand, laying the groundwork for its manifestation in the market. However, they don’t instantly trigger demand.

Gold ETF approved at red line…

The journey might be bumpy, but the destination promises to be remarkable.

This is very cool:

The stark transparency of on-chain data that I previously highlighted is a double-edged sword. For the first time in financial history, we're witnessing major financial products that, thanks to the underlying asset, offers unprecedented transparency. We can now mathematically verify the existence of every single penny's worth of Bitcoin held within these ETFs. This is a game-changer. Hey, Schiff — Bitcoin outshines gold by leaps and bounds. Unlike the gold backing various ETFs, often sitting in unaudited vaults, Bitcoin's transparent, verifiable nature makes it 100x more reliable and trustworthy 🙃.