Bitcoin (CRYPTO: BTC) rallied 154% over the past year. Several factors made that resurgence possible, including a rotation back to risk assets as recession fears diminished. However, the approval of spot Bitcoin exchange-traded funds (ETFs) certainly contributed to those gains, and they could have a more significant impact in the future.
To elaborate, the Securities and Exchange Commission (SEC) approved 11 spot Bitcoin ETFs in January. Some analysts called that decision a watershed moment for cryptocurrency because those ETFs could unlock demand from institutional investors, a group with about $100 trillion in assets under management.
Lo and behold, several hedge fund managers purchased positions in the recently approved iShares Bitcoin Trust (NASDAQ: IBIT) during the first quarter, as detailed below.
Israel Englander of Millennium Management purchased 20.9 million shares of the iShares Bitcoin Trust, valued at $844 million on March 31. The ETF ranks as his 12th largest position excluding options contracts.
Steven Schonfeld of Schonfeld Strategic Advisors purchased 6.1 million shares of the iShares Bitcoin Trust, valued at $752 million. The ETF ranks as his second-largest position excluding options contracts.
Ken Griffin of Citadel Advisors purchased 440,709 shares of the iShares Bitcoin Trust, valued at $17.8 million.
Paul Singer at Elliot Investment Management purchased 296,010 shares of the iShares Bitcoin Trust, valued at $12 million.
Certain analysts have made bold predictions in the wake of the SEC’s approval of spot Bitcoin ETFs. For instance, Anthony Scaramucci of SkyBridge Capital believes Bitcoin could eclipse the market capitalization of gold. That values the cryptocurrency at roughly $800,000 per coin, implying about 1,050% upside from its current price of $69,000.
Similarly, Cathie Wood of Ark Invest believes spot Bitcoin ETFs will eventually capture about 5% of institutional assets under management. That prediction values the cryptocurrency at roughly $3.8 million per coin, implying about 5,400% upside from its current price.
Here’s what investors should know.
Spot Bitcoin ETFs could boost demand for the cryptocurrency
Bitcoin’s price is ultimately determined by supply and demand. That said, because supply is limited to 21 million coins, demand is the most consequential variable. In other words, Bitcoin’s price will increase as demand increases, and its price will decrease as demand decreases.
The bull case for spot Bitcoin ETFs is straightforward: They offer direct exposure to Bitcoin but without the friction associated with cryptocurrency exchanges. That value proposition could bring more retail and institutional investors to the market, unlocking demand that drives its price higher.
To elaborate, spot Bitcoin ETFs tend to be less expensive than cryptocurrency exchanges. The iShares Bitcoin Trust bears an expense ratio of 0.25%, meaning the annual fees would total $25 for every $10,000 invested in the fund. By comparison, Coinbase charges between 0.4% and 0.6% per transaction for orders under $10,000.
Additionally, spot Bitcoin ETFs allow investors to add Bitcoin exposure to existing brokerage accounts. But buying Bitcoin outright involves creating, funding, and maintaining a separate account with a cryptocurrency exchange. That may sound like a small source of friction, but it has likely kept some investors on the sidelines
Indeed, that theory is corroborated by the extraordinary success certain spot Bitcoin ETFs have enjoyed since their launch. For instance, the iShares Bitcoin Trust and the Wise Origin Bitcoin Fund accumulated more assets during their first 50 trading days than any other ETFs in history, according to Eric Balchunas at Bloomberg.
The iShares Bitcoin Trust is worth buying but with reasonable expectations
Every spot Bitcoin ETF should do the same thing: Buy Bitcoin, split it into shares, and sell those shares on the stock market. Not surprisingly, investors have gravitated toward the ETFs that offer lower fees, especially those issued by well-known asset managers.
As mentioned, BlackRock‘s iShares Bitcoin Trust and Fidelity’s Wise Origin Bitcoin Fund have been very successful. That’s because both funds bear a relatively low expense ratio of 0.25%, but also because BlackRock and Fidelity are two of the largest asset managers in the world. Personally, I think investors interested in owning a spot Bitcoin ETF should keep things simple and select between those two funds.
As a caveat, there is no guarantee Bitcoin ever reaches Anthony Scaramucci’s $800,000 price target, nor is it guaranteed to reach Cathie Wood’s $3.8 million price target. Both outcomes are plausible — I would never be so bold as to say anything was impossible where cryptocurrency is concerned — but it’s also possible that Bitcoin goes to zero. Speculating on the future price is relatively fruitless.
Instead, investors should focus on facts. Bitcoin outperformed virtually every other asset class over the last five years, including stocks, bonds, commodities, gold, and real estate, according to Ark Invest. That information makes a compelling case for owning Bitcoin (or a spot Bitcoin ETF) but only for investors comfortable with high risk and extreme volatility.
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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.
Billionaires Are Buying This Cryptocurrency ETF That Could Soar 1,050% to 5,400%, According to Certain Wall Street Analysts was originally published by The Motley Fool
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