Analyst’s honest opinion on BlackRock ETF Bitcoin approval

The approval of a bitcoin spot ETF in the United States has never seemed so close. And that would be a massive game changer for crypto.

Financial advisors manage about 30 trillion in assets. That's why it's a big deal is what the ETF represents. It's a bridge to all this wealth.

Last month, the world's largest asset manager, BlackRock, filed an application for a bitcoin spot exchange traded fund with the sec. That triggered a major crypto rally and a new wave of applications from other major firms. Still, the SEC has so far rejected all applications for spot Bitcoin ETFs. Its chair, Gary Gensler, has spearheaded an unprecedented crackdown on the crypto industry in recent times. So how likely is the approval of a spot Bitcoin ETF in the United States? What would be its impact on the market? And would it be beneficial for the long term goals of crypto? To find out, I talked to Eric Balchunas, a senior ETF analyst at Bloomberg Intelligence.

I'm Giovanni.

On this show, we challenge the ideas that shape the world of crypto. In each episode, we assess a crypto narrative, a macroeconomic outlook, or a potentially disruptive technology. Only the most solid ideas will make it to the other side. Why would the approval of a Bitcoin ETF be such a big deal?

Yeah, the big deal is that an ETF is the platform or vehicle that so many financial advisors prefer. Right? It's like, you know how back in the day, millennials prefer getting their music through itunes or digital, whereas the boomers still use compact discs. People just like things delivered in a certain way. And the ETF is the format in which the boomers and the financial advisors prefer their investments delivered in. And this matters because financial advisors manage about 30 trillion in assets. And a lot of that is the kind of people who are a little on the more wealthy side and who need help, you know, estate planning and taxes. And this would open up all that money. It still wouldn't be a big weighting in a normal portfolio for somebody who's a casual investors. But even like 1 or 2% of 30 trillion is a lot of money, right? And you know, that's a big deal. That's why it's a big deal is what the ETF represents. It's a bridge to all this wealth.

The big game changer seems to be the move of blackrock, which is the world's largest asset manager. It has around $9 trillion worth of assets under management. So we know that the SEC has a very bad record in terms of its relationship with ETFs. ETF applications, it rejected around I think 30 applications in the last decade for Bitcoin Spot ETF. The first one was filed by the Winklevoss twins around 10 years ago. And so why would this time be different?

Well, if that's a great question and our odds of approval within the next, we'll say this year is about 50%. But that means 50% it won't get approved. Right. And that 50% note won't get approved is because the SEC hasn't said anything new. It's not like they've come around and there's been a speech by Gary Gensler where they've written something that has created an opening. This is purely something BlackRock is seeing. So BlackRock, this is why this matters. They're, they're very smart and they don't just throw filings out willy nilly. They are a very high level, not messing around asset manager. Right. So they clearly see something that out there that they think they can get through the regulators. And so the original flying from blackrock, if you read it, said NASDAQ and Coinbase will be working together and our ETF will be the one that's listed. So when I see NASDAQ and BlackRock clearly having some zoom calls on this, I'm sure, and going through their checklist, they're not filing unless they, they really think this has a really good shot. So that's what's different this time. Everybody else kind of is just jumping back in line. There's nothing too new there. It wasn't like fidelity or wisdom trees. Filing raised our odds. We went from 1% to 50% basically on BlackRock. But now that we've talked to ARK a little more, we've had some work discussions, we're more even at 51. Like if we had to pick 49 or 51, we would go 51. The only question is timing. Well, I still think it's 50% odds this year. It goes up dramatically if we go into early next year because the way the filings are, the SEC can delay and delay and delay and their final decision, the first final decision they have to make is in early January with ark. The next ones would be like March, April. So if they punted, punted, punted and then approved that final decision, that would put us into next year a little bit, but not by much. So I, like I said, I think the odds are good that we get there.

Okay, so ARK has this basically time advantage over the rest. But Blackrock has the big name behind it.

Yeah, I mean that this is, this is like an arc soil, you know, small company, indie, independent. Blackrock's the big behemoth. It's, you know, a lot of this is just so fascinating because there's so many unknowns. It involves like David Goliath, a bunch of people who are all racing for what's going to be a big pot of gold. So like bitcoin will get all these new investors, but the asset manager who offers the ETF if you're out first or maybe second, you know, if you're early, it's usually very good. It's hard to penetrate the first couple that get all the liquidity. And so they know that this is a almost near lock of a successful product. So they're all scrambling to be first. And who will win? We don't know.

We saw that a couple of years ago when the bitcoin future ETF was approved. That brought in in a very few days, if I'm not mistaken, billions of new capital into the bitcoin market. What would be the potential here in terms of capital inflow that we would see in case of an approval?

So I think a, because of the SBFF FTX scandal, it wouldn't be as big of a launch as I think it would have if it was before that, like in the 2021 era, if a spot bitcoin went there, I think it would be 10 billion in the first week. I think this will be a slightly more measured launch. I think because of SPF ftx, it could take years before some of these boomer types are really going to get over that. Over time though. I have no doubt that spot Bitcoin ETFs will crush the futures ETFs in assets. Remember gold ETFs? I think they're somewhere around 70 billion, but they've been around for a while. So I can see crypto ultimately getting up to about where gold is after a couple years.

When we saw that BlackRock filed this application a couple of weeks ago, the price of bitcoin spiked up. And since then it has been, there's been quite stable around the 30,000 benchmark. Do you think that that was, that was it, that was the market reaction or we're going to see a bigger reaction in case it gets approved?

It's a great question because you know, there's that whole phrase on Wall street which is buy the rumor, sell the news. Right. So people are buying the rumor, obviously. Right. When Bito launched the futures etf that marked the top actually like there was a, this is actually before ftx, but the. Right around then Bitcoin went down a little bit. So there might have been a similar situation of buying the room or selling the news with the futures etf. Long term, if you have more of the mainstream money, if you have Bitcoin in a vehicle or platform that a lot of people prefer, you're going to get some adopters and that's obviously going to mean buy orders for Bitcoin. If you buy the etf, the ETF market makers have to go buy Bitcoin. Could there be like a sell the news drop after the ETF comes out? Sure, but certainly over time if I would, if I'm a crypto person again, I would just look at this as a long term view and I would go watch Larry Fink's interview yesterday on Fox Business. Listen to this guy talk. He's the guy who runs the biggest asset manager on planet Earth. It's not just the etf. He's very bullish overall and he keeps, tends to set the tone with a lot of other wealthy managers. I wouldn't be surprised if we see, we've already seen Fidelity sort of get involved and so you get these bigger mainstream companies. The amount of money that they run, have access to and are trusted by is just massive.

Coinbase is playing a big role in all these filings. The SEC sued Coinbase not long ago together with Binance. So it seems to be in a bad position here. And why do you think they picked Coinbase? Don't you think that Coinbase could actually decrease the chances that the, the, the ETF is going to be green lighted at the end.

Yeah, it's a good. I've been getting this question a lot. Two things on that. First, I think the SEC is just, I think they view Coinbase as the least dirty shirt. It's not like they love Coinbase, but relative to Binance they do. Now Coinbase also is working closely with BlackRock. Not just now, but they're in a partnership with them to custody other assets for them. So blackrock must see something in Coinbase that's legitimate. And then NASDAQ comes in. NASDAQ must see something. So NASDAQ and BlackRock are well aware that the SEC is suing Coinbase and yet they're still going to work with them. My guess is BlackRock, NASDAQ see how they can help Coinbase evolve to the point where the SEC is comfortable with them.

A lot of people are concerned that the original ethos of bitcoin would be ruined or affected by this. Because what they say is that bitcoin is created to be a self owned asset so people should take ownership of that bitcoin. This was the original ethos of the technology. By introducing this spot etf, people are going to be incentivized to delegate ownership to basically these custodians. They want own directly bitcoin, they will just get exposure to it. So in that case the whole ethos of bitcoin will get a bit lost. What do you think about it?

Yeah, it's a fair point. I mean, you know, you see some of these people who are real, like they would be trashing Larry Fink 2 years ago now they love them. And you're like, wait, you know, isn't a little inconsistent that you love to be sort of the outsider who's against this sort of system and here comes literally the system, right? And now you're cheering this on. There's always been this tension between the ethos and just the price going up. And I think ultimately if the price goes up, that cures the ethos internal dilemma for a lot of people. Even if Larry Fink went nuts and BlackRock went bankrupt, your bitcoin is safe with the custodian. Those are the checks and balances with a regulated fund like an etf. That's why the custodian is picked and the custodian stores it. And so that's really great. It's physically backed and that's what makes the ETF different than something like an ftx. And so I would almost consider just the etf, just almost like another exchange, just one that's way more legitimate. If I had to put a number on it, 3/4 of people like it seems like 25% are skeptical. There's maybe 5% that purely hate it.

Thanks a lot Eric for being on our show. That was a cool conversation.

Thank you very much. It was great to join you.