Approval of Bitcoin ETFs will allow for more conservative investors, which could have a significant impact on the Bitcoin price.
Financial experts believe that cryptocurrency’s price is driven solely by speculation. In fact, some critics have suggested that fixed income instruments such as treasury bills are not related to digital assets. This point of view is fairly accurate because, at this time, most investors from the asset class are not allowed to invest in Bitcoin (BTC) and altcoins.
Only certain asset classes are allowed to be invested in public pension funds, retirement funds, and fixed income plans. These restrictions are based on the fund class regulation, fund bylaws and administrator’s risk assessment.
Grayscale’s GBTC Trust is not available to all funds.
The mutual fund manager doesn’t have complete control over the investment decision, contrary to popular belief. Fund administrators are a third-party company which acts as an intermediary between investors and the manager of mutual funds to distribute and verify investments.
Therefore, the fund administrator might rule that a particular instrument poses a significant risk and either limit the exposure or deny access to it. In this case, the trust fund is the investment vehicle that Grayscale Bitcoin (GBTC) uses. It involves a credit risk.
Global asset managers typically have a 30-60% fixed income exposure. It is unlikely that they will have any exposure to cryptocurrency. Amundi, a leading European investment company with more than $2.1 trillion in assets under management is an excellent example.
According to BCG Group, the global asset industry has surpassed $100 trillion, with North America holding nearly 50% of this figure. These staggering figures lead analysts to mistakenly link them to the Bitcoin ETF instrument.
According to Reuters, more than half of all investment-grade corporate bonds in the eurozone now trade with negative yields. This represents 70.8% of total government debt, which is $7.7 trillion.
Financial Times has reported that the value of the global negative-yield debt has surpassed $16.5 trillion, fueled by investors’ more pessimistic outlook and bond purchases by central banks.
Fixed income strategies will be gradually abandoned by investors
Although it’s possible to believe that investors who are getting negative returns will eventually shift to more risky assets, it is unlikely that this will happen. Alternative investments and non-leverage multiassets are the most likely beneficiaries, as they typically have lower risk than equities or high-yield structured assets.
A possible approval of Bitcoin ETFs by the U.S Securities and Exchange Commission will allow for access to a wide range of funds currently excluded from cryptocurrency exposure.
Even though the ETF is reserved for a small portion of the equities or multi-asset classes only, the new instrument does not need to capture $500 Billion to boost Bitcoin’s market capitalization to above $2 Trillion. There are less than 2.5 million coins that have been deposited on exchanges. This is equivalent to $125 Billion readily available for trading.
The best option is to invest in commodity funds
According to iShares, the value of global commodities exchange-traded products adds up to $263 billion. It is reasonable to suppose that this number exceeds $500 billion, even though not all mutual funds are listed.
This means that just 1% of this asset class would equal $5 billion. Such an investment would certainly propel Bitcoin above its $65,000 high.
Traders will be able to take advantage of the potential inflow if and when a BTC ETF gets approved. This is regardless of whether the products make $5 billion or not in the first few months.
The ETF will continue to be in demand as long as central banks and governments continue to inject liquidity and buy bonds.