Nearly two weeks after the U.S. Securities and Exchange Commission (SEC) approved spot ETFs, Bitcoin prices have been range-bound near the psychologically important $40,000 level. After the latest round of economic data was released, Bitcoin prices rebounded from trendline support at around $39,808 last Friday and regained control of the $40,000 mark. From a fundamental perspective, Bitcoin trading is taking place against the backdrop of a relatively busy period for data in the U.S. market.
BlackRock's Bitcoin ETF hits $2 billion
On January 27, BlackRock iShares Bitcoin ETF (IBIT) became the first of the recently launched spot Bitcoin products to reach $2 billion in assets under management (AUM). Data shows that investors added about $170 million to IBIT, and the fund purchased nearly 4,300 more Bitcoins, bringing the total number of tokens held to 49,952.
The next fund to break the $2 billion mark is likely to be Fidelity’s FBTC, which held just under 44,000 bitcoins as of January 25 (Grayscale’s GBTC cannot be included in the discussion as the company’s spot ETF was converted from a closed-end fund).
The early dominance illustrates the strength of the two asset management giants' marketing and distribution channels, which may help to incorporate products into institutional and retail portfolios. Despite the Bitcoin crash after the launch, which caused double-digit losses for both IBIT and FBTC, the inflows have continued. Their distribution strength, coupled with investors' possible distrust of smaller issuers, puts the two companies far ahead in the field.
Although most of the discussions about the listing of Bitcoin spot ETFs revolve around how the participation of asset management giants will affect Bitcoin prices, this is only a short-term story. The most far-reaching impact of ETFs in promoting the institutionalization of Bitcoin is that it will be extremely difficult for the United States to ban digital assets, allowing Bitcoin to permanently promote the evolution of the basic working method of currency.
ETFs make it extremely difficult to ban Bitcoin
With the stroke of a pen by the SEC, we can now see some of the largest and most powerful companies in finance, including BlackRock, Fidelity, Invesco and others, holding billions of dollars in Bitcoin, with ETFs enabling a large number of investors who have never traded on a cryptocurrency exchange or privately held Bitcoin keys to have immediate access to Bitcoin.
This is important because it greatly expands the special interests that support maintaining and strengthening Bitcoin’s role in U.S. financial markets. If future members of Congress who don’t like Bitcoin want to enact some restrictive policies, they will listen not only to the people who hold Bitcoin, but also to major financial players who have considerable influence in Washington.
This alone makes it difficult for policymakers to proactively restrict the use of Bitcoin, as special interest groups play a very important role in the policy-making process, and lobbyists are particularly good at opposing "new policies that adversely affect the interests of their clients."
Does the SEC know what it has done?
The SEC knows all this, which is why the fight to approve a Bitcoin ETF is so intense. Under SEC law, it is not the commission’s job to decide whether Bitcoin is a good investment, but that is up to investors and the market to decide.
Over the past decade, the SEC has steadfastly resisted efforts to allow investors to gain exposure to Bitcoin through mainstream, regulated vehicles, precisely because the SEC knows that its endorsement could greatly increase investor interest in digital assets.
It is reported that the SEC approved the spot Bitcoin ETF only under the duress of a unanimous opinion written by Neomi Rao of the U.S. Court of Appeals for the D.C. Circuit, which called the SEC's resistance to the Bitcoin ETF "capricious and arbitrary" because the agency has approved almost identical Bitcoin futures and other commodity products. SEC Chairman Gary Gensler has repeatedly stated that Rao's opinion forced him to make a decision. It is worth mentioning that the other two Democratic appointees on the committee, Caroline Crenshaw and Jaime Lizárraga, voted against the ETF listing in January.
Bitcoin competes with the US dollar. Will the United States intervene and suppress it?
Now we know that the approval of a Bitcoin ETF makes it difficult for the government to ban the Bitcoin market in the United States, at least in the foreseeable future. But what if Bitcoin rises enough to compete with the US dollar as a store of value? At that point, will the United States step in and suppress Bitcoin?
The United States could actually try, but by then it would be too late. Take Argentina, for example. The Argentine government prohibits its citizens from exchanging more than $200 in Argentine pesos for dollars each year. Despite this restriction, the Argentine Central Bank estimates that Argentines hold 10% of the total U.S. dollars in circulation, more than $200 billion in cash.
Currently, the U.S. federal debt is about $34 trillion, which effectively means there are about $34 trillion in Treasury bonds in circulation. Bitcoin's liquidity, or its attractiveness to large institutions as a store of value, could start to compete with U.S. Treasuries at about one-fifth of the value (say, $7 trillion, about nine times the current market value of Bitcoin). As the federal debt continues to grow, the threshold for liquidity competition will also increase.
However, in a circular logic, Bitcoin can only reach a market value of $7 trillion if it gains wider acceptance as a store of value than it currently does. At that point, the U.S. crackdown on Bitcoin is likely to backfire, just as Argentina’s capital controls are now, because it will send a signal to world markets that the U.S. no longer believes in the inherent superiority of the dollar.
Summarize
In general, the approval of the Bitcoin spot ETF not only marks the further development and institutionalization of the digital asset industry, but also provides certain protection for the long-term existence and development of Bitcoin. This trend may continue to drive financial giants to further explore the digital asset field in the future and provide investors with more diversified investment options.
