News - What would happen if BlackRock and Co. stepped into BTC with 1% of their assets?

By Mike Hesp

What would happen if BlackRock and Co. stepped into BTC with 1% of their assets?

How high can the Bitcoin price still rise? The new wave of Bitcoin ETF filings from Wall Street giants like BlackRock makes you think again. And remember: always do your own research!

Who is not familiar with it? As an investor, it is very tempting to think about what prices the corresponding underlying could reach if a certain event occurs. "What if ..." is a phrase often used especially in the crypto sector. While this should always be taken with a grain of salt, in this article we want to ask this question. After all, with the many Bitcoin spot ETF applications from heavyweights like BlackRock, such a scenario is getting closer and closer.

Disclaimer: This article is absolutely not advice, just a "what if...." and does not guarantee the future. It is therefore not a recommendation to buy or sell. Therefore, please take the text below with a grain of salt.

This is how big BlackRock and Co. are.

With BlackRock (USD 9.09 trillion in assets under management, AuM) has World's largest asset manager a Bitcoin ETF application filed with the U.S. Securities and Exchange Commission (SEC). Rumor has it that the world's number three, Fidelity Investments (USD 4.28 trillion AuM), is also flirting with a Bitcoin ETF. There is no official confirmation yet, but Fidelity confirmed its interest in crypto just last week with an investment in EDX, a new crypto exchange.

No rumour, on the other hand, are Bitcoin ETF requests from Invesco (US$1.48 trillion AUM) and Wisdom Tree (US$90 billion), which have also applied for a spot ETF for the cryptocurrency. By comparison, the gross domestic product of the world's fourth-largest economy, Germany, is only $4.26 trillion (as of 2021).

So if just a fraction of the money stuck there in funds and ETFs were diverted to Bitcoin, that could have a significant effect on the Bitcoin price.

Gold ETFs as role models

There are good reasons for this argument. After all, this scenario occurred when gold ETFs were issued in 2004. The launch of the first gold ETFs caused a gold rally. While the gold price was still at US$400 in November 2004, by 2006 it was already US$600 and two years later, in 2008, it was as high as US$800. The gold rally was far from over and reached its temporary peak in 2011, at nearly US$2,000. The ETF construction made gold more easily and cheaply accessible to many investors, which, among other things, drove the price increases.

BlackRock and Co. distributors, driven by attractive commissions, promoted gold ETFs at the time as an important addition to their portfolios. The story of gold being part of a well-diversified portfolio worked and generated trillions of dollars in inflows. This same narrative could experience a resurgence in the form of digital gold. After all, it is an asset class in its own right and tends to have low correlation (also a must for well-diversified portfolios).

The Bitcoin law

Unlike gold, ETFs are not expected to become the primary vehicle. The rationale of the inherently digital underlying asset suggests direct investment. However, for regulatory and infrastructure reasons, Bitcoin ETFs may be an important transitional solution.

To get an idea of the volumes involved, consider that the five largest asset managers in the world alone manage assets of about US$25 trillion. If just one percent of this were continuously transferred to Bitcoin or invested through new funds, this would be correspond with fund inflows of about $250 billion. With a current market capitalization of BTC of just under $600 billion, this is a remarkable effect.

With a very likely further increase in the money supply in the coming years, a steady adoption of Bitcoin across the board and the existence of many more than just five asset managers in the world, the assumed inflows and price effects would be much higher. Especially since the vast majority will likely still come from direct Bitcoin purchases in the future. Spot ETFs would only be a nice addition.

Comparison of equity and gold markets

Of course, there are other comparative variables that help predict future Bitcoin market capitalization. For example, the total market capitalization of the global stock market is more than US$100 trillion. About three percent of this can be attributed to just one company, Apple. This makes it five times more heavily capitalized than Bitcoin.

Gold's market capitalization, which is about $12 trillion, also shows how much room Bitcoin has for improvement. If Bitcoin were to gain just 10 percent of the gold market share, that would mean a doubling of the current market capitalization - and simplified - a doubling of the current Bitcoin price. Few experienced crypto investors are likely to doubt that this scenario is anything but crazy. Especially since Bitcoin, when it marked its all-time high at about US$67,000 at the end of 2021, had a market capitalization of about US$1.2 trillion.

Some Bitcoin fans are even convinced that Bitcoin could reach the same or even higher market capitalization as gold. In this scenario, Bitcoin's market capitalization should increase twenty-fold. If we were to break this down 1:1 by price, it would correspond to a BTC price of about US$600,000.

Disclaimer: This article is absolutely not advice, just a "what if...." and does not guarantee the future. It is therefore not a recommendation to buy or sell. And remember: always do your own research!

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