Jérémy Le Bescont, editorial manager at CoinShares, recently sat down with Eric Balchunas, senior ETF analyst at Bloomberg to discuss the intersection of crypto and ETFs. Balchunas shed light on the impact of ETFs in the crypto ecosystem, the pivotal role of bitcoin, and what investors might expect in the coming months.
“Part 1 was real retail — a lot of people working the kinks out figuring things out, a lot of fraudsters. Part 2 seems to be more the financialization of Bitcoin and bringing it into the major leagues. And I think the ETF jumpstarted all of that."
Bitcoin ETFs & the “Moon-Landing Moment” for Crypto
The SEC approval of spot bitcoin ETFs in January 2024 proved a watershed moment for bitcoin, and the crypto ecosystem at large. It was a moment long in the making, marked by setbacks and the struggles of a nascent industry. Blockchain and the networks built on the blockchain technology — like bitcoin — have been under a state of continuous development and evolution since 2008. As with any nascent technology, there have been a number of challenges. In particular, bad actors sought to exploit the technology, investors, or the fledgling industry.
The spectacular collapse of FTX less than three years ago cast a long shadow over the crypto investment world. However, institutional investors like BlackRock saw the potential in bitcoin, with its supply scarcity and the unique opportunities it provides. They also understood the benefits that the ETF wrapper could provide for a growing swathe of interested investors. By gaining exposure to bitcoin via an ETF, investors wouldn’t have to jump through all the crypto hoops. These include the need for a crypto wallet, custodianship, and navigating crypto exchanges.
“Right when BlackRock ETF filing hit, it was June 2023. I think it was less than two years since FTX fallout, and that had kind of a really bad PR in the air,” Balchunas explained. “This was a moon-landing moment, in my opinion. If it had been any other issuer, I just don’t think it would have meant as much.”
The ETF, with its liquidity, ease of access, and tax-efficient structure, opened up bitcoin to a whole new class of investors. Beyond that, spot bitcoin ETFs brought a perception of legitimacy that digital assets historically struggled to overcome. Since January 2024, institutional investment has grown in spot bitcoin ETFs. Furthermore, bitcoin adoption continues to broaden on the retail, corporate, and government level.
“Even though this is a huge win for crypto and bitcoin, I do think it’s a win for the ETF,” noted Balchunas. “It shows just [how] convenient, and easy, and cheap they are, and how many — especially U.S. investors — really lean on them for exposures to everything.”
Bitcoin in Times of Global Crisis
In the turbulent times we find ourselves in this year, bitcoin may hold specific, growing appeal for a subset of investors. Some investors may find themselves questioning, perhaps for the first time, the reliability of U.S. assets. Alongside scarcity from a supply locked at a 21-million cap, bitcoin offers a financial alternative outside of traditional finance.
Bitcoin could prove increasingly attractive in an environment of weakening fiat currencies. For those worried about ballooning government debt, the decentralized nature of bitcoin becomes a significant feature. “Especially If you believe that there’s a huge problem with government debts and that governments are going to lean on the expediency of printing money to solve every problem from here on out," Balchunas said. “If currency debasement is real, if you… believe that, it’s hard not to give bitcoin a fair shake.”
There is also a long-held belief that increasing bitcoin adoption is a direct threat to the U.S. dollar. Larry Fink, CEO of BlackRock, believes that threat is markedly more significant in the current environment with runaway U.S. government debt.
Some believe that the pivotal role of the dollar as the global reserve currency could come under threat, should bitcoin uptake grow. In an ouroboros twist, bitcoin adoption may also grow, should confidence in the U.S. dollar and fiat currency decline. Balchunas, however, feels that bitcoin as a direct threat to American currency misconstrues the reality.
“It’s better to have an apolitical currency be the thing that we all use than another country [currency], if you’re American." The potential check that bitcoin could provide globally on fiat currencies, and therefore governments, is a beneficial one in Balchunas’ eyes. “That’s powerful, and that’s a good thing for everybody.”
Balchunas Peers Into the Crypto Crystal Ball
For bitcoin and digital assets, the near-term future looks bright, according to Balchunas. Growing global regulatory support and regulatory frameworks around digital assets and cryptocurrencies could prove a tailwind. This is particularly prominent in the U.S., which has long lagged Europe when it comes to crypto regulation.
The current U.S. administration has openly embraced bitcoin, establishing a Strategic Bitcoin Reserve earlier this year. What’s more, they appear favorable towards stablecoins and the crypto economy at large. In a positive policy environment, digital assets could experience significant growth.
“I think over the next five months, you’re going to see a lot of coins approved in ETF format in the U.S., in spot format,” Balchunas predicted. And as far as the existing regulatory barriers are concerned, strong deregulation sentiment within the administration and current SEC will likely work to bring those barriers down sooner rather than later. “Look for a lot of deregulation — there’s already been a good amount.”
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out some of our webcasts.
Read more commentaries by VettaFi
