Many billions coming in for BlackRock’s Bitcoin ETF

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According to a former CEO of BlackRock, Steven Schoenfeld, as many as $200 billion could be coming in for BlackRock’s spot Bitcoin ETF. 

He also says it is very likely that the SEC will approve spot Bitcoin ETFs in a few months. 

BlackRock: Steven Schoenfeld talks about the potential of the ETF on spot Bitcoin

Schoenfeld made these statements during a speech at CCData‘s recent Digital Asset Summit held in London a few days ago. 

He participated in a panel discussion devoted specifically to ETFs on new assets, and he was quite outspoken. 

Schoenfeld is now CEO of MarketVector Indexes, a VanEck company that deals with indexes and derivative products. He can be described as a real expert in the field, although he does not seem to have much experience in the crypto market. VanEck is one of the companies that has applied to the SEC for approval of spot Bitcoin ETFs. 

The current CEO of MarketVector Indexes was the founder and CIO of BlueStar, and has been in the industry for 36 years now. 

At one point in his long career he was also at Barclays Global Investors (now Blackrock), where he managed more than $70 billion in equity index funds and ETFs. He also co-founded IndexUniverse.com, which later became ETF.com. 

Although he comes from the traditional markets, and although MarketVector Indexes only deals with financial products in the traditional markets, during his talk at the Digital Asset Summit he proved to be quite familiar with Bitcoin as well. 

Schoenfeld’s hypothesis

The entire recording of the Digital Asset Summit is available on YouTube. 

At minute 3:47:58 the roundtable discussion with ETFs begins, during which Schoenfeld says he thinks it is likely that the SEC will end up approving applications regarding spot Bitcoin ETFs, citing in particular BlackRock’s own. 

He believes that such approval could come in January, as previously revealed by Bloomberg Intelligence. 

But the most interesting thing he said is another, as the deadline for the possible approval (10 January 2024) was already known. 

After adding that this time the SEC has started asking for comments on these requests, he said that this represents a marginal but significant improvement in the dialogue. He also pointed out that the case won by Grayscale against the SEC will most likely effectively force the agency to approve the conversion of the Grayscale Bitcoin Trust into an ETF. 

The speculation circulating is that, in order not to give anyone an advantage, the agency might approve en bloc all legitimate requests for ETFs on spot Bitcoin. 

At one point he added that his firm analyzed the numbers, and came to the conclusion that approval of ETFs on spot Bitcoin could bring an inflow of between $150 billion and $200 billion over three years on Bitcoin derivative investment products. 

If so, the AUM of crypto derivatives could double or even triple. 

The market for crypto derivatives

Products such as ETFs are not used much for speculation. 

Pure speculation, i.e., intraday trading, is mostly done with futures and margin trading, which allows one to open long and short positions in short-term leverage. 

ETFs, on the other hand, are mainly for large long-term institutional investors, so they should be distinguished from the futures market. 

For example, in the last 24 hours on Binance alone more than $25 billion of crypto derivatives, that is, futures and options, were traded, while on the spot market also on Binance this figure in the last 24 hours was less than $5 billion. 

So the trading volume on the futures and options market is significantly higher than on the spot market, and this gives a good idea of how much that 200 billion Schoenfeld speculated could be. 

Suffice it to say that the entire current market capitalization of Bitcoin is about $530 billion, and Schoenfeld was referring only to spot Bitcoin ETFs. 

It is true that Schoenfeld specified that this is an estimate covering the next three years, but next year there will be halving and in theory it is possible that the following year there will be another big bullrun. 

Although these are still just all hypotheses, by no means confirmed, the picture that emerges is definitely interesting. 

The market in the next three years after the approval of BlackRock’s Bitcoin ETF

In fact, in the event that many tens of billions of dollars of capital, if not hundreds, flowed into the spot BTC ETFs, their managers would be forced to buy BTC on the spot market to put as collateral for the shares of the ETFs they would be forced to create. 

So in fact an increase in demand for the spot ETFs inevitably produces an increase in demand for the underlying asset, and whether that happens in the year of halving, or the year after, it is possible that the consequence will be an increase in price. 

It must be remembered that halving generally reduces supply, because it halves the creation of new BTC that are given as premiums to the miners who validate the blocks, but these miners generally sell the BTC they collect to finance the huge expenses they are forced to incur. 

A halving of the BTC they cash in inevitably leads to a sharp reduction in the BTC they sell daily to fund their business as well. 

Approximately 900 BTC ($24 million) are created and distributed as prizes each day, but starting at the end of April 2024 this will become 450 (until the next halving in 2028). 

Right now in total there would turn out to be about 1.8 million BTC on the various exchanges, so in one year the miners are cashing in a little more than a quarter of that amount. 

With halving they will cash out in one year an amount equal to only one-eighth of all the BTC currently on the exchanges. 

At this point it is to be expected that, should Schoenfeld’s prediction prove correct, the impact on Bitcoin’s price will be positive and significant, and precisely during the post-halving period, which is generally when the big bull runs start.