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The establishment of a Bitcoin ETF will open the door to more cautious investors, which could have an irreversible impact on the price of BTC.
Some financial experts feel that the price of cryptocurrencies is completely determined by investor speculation, and critics have stated in recent years that fixed income products such as Treasury notes have nothing to do with digital assets. This viewpoint is fairly correct because, at the moment, most asset class investors are not permitted to invest in Bitcoin (BTC) and altcoins.
Public pension funds, retirement plans, fixed income and most non-leverage equity and multimarket mutual funds can only invest in certain asset classes. These limits arise from the fund class regulation, the fund’s own bylaws and the administrator’s risk assessment.
Not every fund can invest in Grayscale Bitcoin Trust
Most people are unaware that the mutual fund manager does not have complete influence over the investment decision. The fund administrator is a third-party organisation that acts as a go-between for the fund management and investors in order to verify and distribute assets associated with investments.
As a result, the fund administrator may decide that a particular instrument offers a high risk and limit or deny access to it. In this case, the trust fund is the investment vehicle employed by the Grayscale Bitcoin Trust, or GBTC, and it entails issuer credit risk.
Global asset managers typically have a 30 percent to 60 percent fixed income exposure, therefore cryptocurrencies are extremely unlikely to be included. Amundi, the top European investment business, is a notable example, with over $2.1 trillion in assets under management.
According to BCG Group, the global asset industry has surpassed $100 trillion, with North America holding nearly 50% of this figure. Unfortunately, these astronomical figures cause analysts to incorrectly relate those numbers to the Bitcoin exchange-traded fund (ETF) instrument.
#Grayscale has partnered BNY Mellon, the world’s largest custodian bank with $41 Trillion in assets in custody. In Feb 2021, #BNYMellon announced they were entering the #Crypto space. Big move by Grayscale in the battle for a #Bitcoin ETF.@Grayscale @BNYMellon #etf #bitcoinetf pic.twitter.com/RfSO7UOKGS
— Thinking Crypto – YouTube Channel & Podcast (@ThinkingCrypto1) July 13, 2021
According to Reuters, more than half of all investment-grade corporate bonds in the eurozone now trade with negative yields. This includes $7.7 trillion worth of government debt, which accounts for 70.8% of the total.
Financial Times 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.
Investors will gradually exit fixed income strategies
There is reason to anticipate that investors receiving negative rates will eventually transfer to riskier assets, though a complete shift to cryptocurrencies is unlikely. Non-leverage multi-asset and alternative investments, on the other hand, are more likely to benefit since they are less risky than equities and high-yield structured assets and bonds.
As a result, if the US Securities and Exchange Commission approves a Bitcoin ETF, it will open the door to a wide range of funds that are currently barred from investing in bitcoin.
Even if the ETF is exclusively reserved for a part of the equities and multi-asset classes, the new instrument doesn’t even need to capture $500 billion to propel Bitcoin’s market capitalization above $2 trillion. Less than 2.5 million coins are deposited on exchanges, equivalent to $125 billion readily available for trading.
Commodity funds are the best candidate
According to iShares, the value of global commodities exchange-traded products adds up to $263 billion. Considering that not every mutual fund is listed, it is reasonable to assume that the actual number surpasses $500 billion.
This means that a 1% allocation from this asset class is equal to $5 billion, and such an investment would undoubtedly be sufficient to boost Bitcoin’s price past its all-time high of $65,000.
If and when a BTC ETF is allowed, traders will anticipate the potential inflow as soon as the permission is announced, even if the products only catch $5 billion in the first few months.
As long as governments and central banks continue to pump liquidity, buy bonds, and issue stimulus packages, there will be a progressive infusion of capital into riskier assets, increasing demand for the ETF.