The price of Bitcoin has more than doubled since the beginning of the year, and as of the time of recording this video sits at $37,000 That's despite current interest rates at multi-decade highs and the recent unravelings of some of the industry's biggest firms such as FTX. In fact, despite all of the frauds, the Bulls are as bullish as ever. Galaxy Digital recently published an article detailing why they think Bitcoin will 5x in the next 3 years. Bitcoin Bulls cite a handful of catalysts for their optimism, including the having event in April of 2024, a peak in interest rates, and most importantly, the possibility of an imminent spot Bitcoin ETF But has the hype gotten ahead of itself after Bitcoin's recent doubling, a substantial amount of optimism is already baked into the price, making the analysis even more critical.

Unfortunately, the arguments for another Bitcoin Renaissance are built on a foundation of quicksand. In today's episode, we'll go over the overly optimistic Arguments for a Bitcoin rally and why we are not convinced that Bitcoin is in for a monster. 2024. As you probably know, Crypto has been on a wild ride over the past 3 years.

During the pandemic, the crypto Market surged as a transition from being a niche thing that nerds were into to a mainstream phenomenon talked about on legitimate financial news outlets. In the later half of 2020 and the first part of 2021, as many people used their stimulus checks in gains from the GameStop short squeeze to buy Crypto Bitcoin surged from less than $10,000 per coin to a peak of over 60,000 Then the bubble burst, catalyzed by the Fed's interest rate hiking campaign and a broader pullback in speculative assets like tech stocks and Spaxs. But in 2023, things started to turn around with the sellers flushed out only the highest conviction Crypto Bulls remained. Additionally, Bulls perceived a number of high-profile victories for the crypto industry.

In July a Court ruled in favor of Ripple in a case brought by the SEC that the cryptocurrency should be regulated as a security. More recently, the price of Bitcoin has surged in anticipation that the SEC May approve various Bitcoin ETFs including applications submitted by recognized issuers like Ark and Black Rock. Theoretically, this could be huge for the adoption of Bitcoin by mainstream investors and for the price of Bitcoin in October Developments in the approval process for these ETFs hit headlines and set the price of Bitcoin up by 30% We'll go through each of the major Arguments for why these developments are bullish for Bitcoin and examine whether or not they hold water on October 24th Galaxy Digital published a research article making a bullish case for Bitcoin based on the ETF potential. Galaxy Digital is a New York-based company founded by billionaire Michael Novag Gratz Their primary business is in crypto trading, lending Mining and asset management.

They have a vested interest in the crypto markets since the more people trade crypto on their platform, the more money they will make. They also have virtually unlimited resources from a Founder with a Crypto tattoo backing them. so if anyone has expertise in the current state of crypto, it should be them. In the research report: Galaxy research associate Charles U makes a number of arguments for why the new ETFs could cause a 74.1% rally in the price of Bitcoin in just one year.

On top of that, he predicts quote, there will likely be a much larger impact on BTC demand from second order effects of a Bitcoin ETF approval unquote. In addition to that predicted 74.1% rally, The essence of his arguments are that the Bitcoin ETFs will be a much better vehicle for many investors to invest in Bitcoin leading to billions of dollars of inflows into the ETFs which will then lead to Upward pressure on the price of Bitcoin. Even with their self-proclaimed conservative assumptions, Galaxy is predicting $14 billion of inflows into a Bitcoin ETF in the very first year, only accelerating to three times that amount in the third year. based on their methods of getting to the 74.1% firste price increase, that would imply a 423 3-year price increase.

On top of that, Galaxy's incredibly optimistic on the timing of a Bitcoin ETF Alex Thorne Head of Firmwide research at Galaxy gives a couple of reasons why he's so optimistic: If you think they're going to ultimately approve n ETF or the ETFs this cycle, well, all of the other 19 B4s, primarily for everybody that refiled in June or filed for the first time in the case of Black Rock they're all in March, right? So the idea is like, well, why would the SEC deny in January and then approve in March Like, what's going to materially have changed during that two-month period So the thinking is, well, like they would. they would do them all by Arc's final date because that's the current first final deadline, but you think it would be even sooner. Yeah, I do. And I And I think because for for one, we're seeing plenty of momentum in May of 20123 Kathy Woods Arc Invest applied to get a Bitcoin ETF approved.

Shortly afterwards, several other major issuers also applied for their own ETFs, including Black Rock one of the largest ETF managers in the world. Following their applications, all issuers have to file what are called forms S1 and S4 with the SEC. The first ever application for a Bitcoin ETF was a decade ago go made by the Winlos Twins co-founders of Gemini. Their application reportedly never received any response from the SEC.

Since the most recent slate of applications, the SEC has engaged with the applicants requesting clarifications and details regarding the proposed ETFs Alex Thorne says that these engagements are very positive for the chances of approval, since they at least indicate that the SEC is considering them seriously. This optimism peaked in late October when speculation mounted that Black Rock ETF would be imminently approved approved. The reason for the speculation was The Etf's listing on the website of the Clearing House Dtcc. People thought that this meant that the process of actually listing the ETF on the public exchanges was happening.

In fact, there was so much attention on the Dtcc website that the site crashed due to high traffic. The ticker actually disappeared from the website for a few hours, during which time the price of Bitcoin dropped about 3% before recovering when it reappeared on the website. This debacle resulted in the biggest rally in Bitcoin in months, bringing the coin up up a total of 30% in October to an 18-month High. The only problem was that the speculation was completely unfounded.

Dtcc confirmed to Coindesk that the ticker had actually been listed on the website since August 2 months beforehand, but for some reason people just noticed it in October and the fact that a ticker is on the website at all has absolutely no bearing on where the approval process is. Despite the official sounding name, the Clearing House Dtcc is a private firm that simply provides clearing and Settlement Services in financial markets, it's completely separate from the SEC Phil Back the CEO of Armada ETFs tweeted that the ticker being on the Dtcc website means absolutely nothing for the regulatory approval process. Dtcc itself confirmed as much when asked by various news outlets. The second reason why Alex Thorne thinks the ETFs will be approved sooner rather than later is even more absurd.

The SEC has guidelines that give it up to 240 days to either approve or disapprove applications. This window would put the Arc applications approval deadline at January 10th 2024. For various other issuers, that deadline would be as late as March, but Thorne says that he thinks the ETS will be approved even earlier than that before the end of 2023. The earliest application The Arc invest one has a deadline of mid January according to Thorne.

If they approve one, ETF, they will probably approve all of them if they decide on all of them together. The approval decision for all the applications should be finished by the earliest deadline, which would be mid January. The approval process is involved proced that the SEC would not want to push off to the last minute. For that reason, they may want to finish up their work before the employees leave for Christmas and New Year's rather than leave unfinished business to wrap up in the first few days of January.

so they will instead approve all the applications at once before the holidays and well ahead of the earliest deadline. None of these arguments seem to me like legitimate reasons to be confident a Bitcoin ETF is imminent, but let's assume that at least one ETF does get approved. According to Galaxy digital, the impacts will be massive mive. For various reasons, they think the ETFs will experience massive inflows, which will cause the price of Bitcoin to Skyrocket.

The main argument for why the ETFs will be a success is because they supposedly provide a much better way to access crypto investing. Many investors only have access to Investments via a self-directed brokerage account or a wealth advisor. They may not want to buy Bitcoin directly due to the complication or concerns about security. Financial advisers are not allowed to buy Bitcoin directly on behalf of clients.

They are however, allowed to buy ETFs and most people who are comfortable buying stocks are also comfortable buying ETFs. So by having a Bitcoin ETF Bitcoin investing would be opened up to many investors who either cannot or choose not to buy Bitcoin directly. The only problem with this argument is that Bitcoin ETFs already exist. This Forbes article even shows that there are at least six different Bitcoin ETFs trading on the public markets today, including funds from major issuers like Proch Shares and Vanek.

These ETFs don't hold actual Bitcoin but they man portfolios of Bitcoin Futures Futures contracts are derivative Securities that get their value from some underlying asset. In this case, Bitcoin You can think of them as kind of like owning a call and shorting a put. You get the upside if the price of Bitcoin increases, but you lose money if the price of Bitcoin decreases. Because of this, you can get almost the exact same economic exposure to Bitcoin by using Bitcoin Futures.

The reason that the SEC only allows the ETFs to hold Futures. instead of actual Bitcoin is because of the unregulated nature of the Bitcoin exchanges. According to the SEC chair Gary Gunler, the Futures markets are battle tested and proven to be robust to issues like Market manipulation and thus much safer for investors. and it makes very little difference in the performance of the fund whether it holds actual Bitcoin or the Futures.

This leads to the second argument for why Bitcoin ETFs will be massively bullish for Bitcoin. According to Galaxy, the total addressable Market or Tam of new Bitcoin ETF investors includes broker dealers Banks and register investment advisers. Together, these three groups total almost $50 trillion in assets under management. Galaxy makes the assumption that after 3 years, most of them will have adopted the Bitcoin ETFs.

In addition, they assume that 10% of the total available Assets in each group will decide to adopt the Bitcoin ETFs for each investor that does, Galaxy assumes that on average, they will allocate 1% of their portfolio to Bitcoin. so 1% of 10% of a mostly penetrated $50 trillion Tam gives about $40 billion of net inflows in the first 3 years. Easy right! This analysis is, in our opinion, hugely flawed in a number of ways. Almost the entirety of their analysis is made up of three assumptions for which they give virtually no explanation or justification.

Why would you assume that 10% of the wealth held in Banks broker dealers and Ras will suddenly start buying Bitcoin Where did that 10% number come from? There's no analysis behind what percentage of these assets are held by investors who already own Bitcoin via other channels. For example, to just start with a massive Tam encompassing the assets managed by the entire banking, broker dealer, and Raia industries, apply a couple of percentages and end up with a$ 40 billion net influence of Bitcoin ETFs is, in our opinion, fundamentally unsound. But it's not just illogical. We can look at examples of ETFs that directly hold Bitcoin called Spot Bitcoin ETFs that have been approved and are trading in other countries.

For example, the Jacobe Ft Wilshire Bitcoin ETF trades on the Euron next Amsterdam stock Exchange and holds substantially all the Assets in long-term Holdings of Bitcoin it has a grand total of well under $2 million of AUM. That's million with an M, not a B, and on most days zero shares trade hands. This particular ETF is only open to professional investors, but in Galaxy's analysis, professional investors would have made up a very large portion of the total addressable market. For example, Banks and Brokers serve plenty of high net worth individuals and institutional investors and would absolutely have access to this type of ETF But at least an answer Dam The inflows into that ETF have literally amounted to a fraction of 1% of 1% of what Galaxy predicts for a Us-based Bitcoin ETF closer to home spot Bitcoin ETFs have been operating in Canada for years, for example.

Btcc has been trading since early 2021, but Btc's total AUM is less than $1.5 billion. Not nothing, but still not nearly the scale of Galaxy is predicting for the US. Given the existence of Bitcoin Futures ETFs and the relatively thinly traded spot Bitcoin ETFs in other countries, it seems unreasonably optimistic to just assume that a spot Bitcoin ETF in the US will have a massively more favorable outcome. But let's say the inflows into a Bitcoin ETF do happen What would be the impact on the price per coin.

According to Galaxy, We can look at the price sensitivity to inflows of gold to tell us what will happen to Bitcoin. There's about nine times as much money held in Gold investment vehicles as compared to bitcoin investment vehicles. For this reason, Galaxy says that for each dollar of inflows into a Bitcoin ETF, there will be five times the impact on the price of Bitcoin. Based on the historical first order correlation between gold inflows and price changes, the $14.4 billion of firste inflows into a Bitcoin ETF that Galaxy is predicting would imply a 74.1% increase in the price of Bitcoin.

That number would go up to 423 after their three-year prediction of ETF inflows, the idea of the price of Bitcoin more than 5x in in 3 years to well over double its all-time high purely on the accounts of ETF inflows is absurdity. Economics 101 tells us that the price of any asset in a free market is determined by supply and demand. Galaxy's assumptions of ETF inflows covers the demand aspect, but the comparison of the price sensitivity to that of gold only covers the supply aspect indirectly through the correlation between inflows and price. Gold trades much differently to Bitcoin, obviously with over 20 times the market cap and much less of it trading hands on any given day than Bitcoin.

It is also traded by very different style investors for very different purposes. These are all important factors in determining what each dollar of inflows means to the price of the security. The point is, regardless of the inflows, the effect on the price of Bitcoin is highly uncertain to anyone with any degree of intellectual honesty. The Galaxy digital article ends with a note that says certain other factors will also add to the bullish effect of the Bitcoin ETFs in the coming months and years.

The author specifically points out the Bitcoin having event in April of 2024 and the possibility of falling into interest rates as reasons 2024 could be a big year for Bitcoin. In reality, the having event will likely only have minimal effects on the price. When each having event occurs, which happens approximately every 4 years, the amount of Bitcoins awarded to the Bitcoin miners for each block of transactions gets cut in half. This reduces the rate at which these new Bitcoins are created.

However, this rate is already insignificant to the total supply of Bitcoin. In fact, compared to a total of about 20 million Bitcoins in circulation today, there will be a total of 1.5 million Bitcoins created over the course of the next 100 years. That's less than 10% of the total Supply over the next 100 years. So, the having event will only be a relatively small change in an overall insignificant aspect of Bitcoin's market cap.

The past. Year's massive Bitcoin rally fueled in part in anticipation of the 2024 having event has likely far overstepped the actual impact of the having. All right guys, that wraps it up for this video: what do you think about Bitcoin ETFs Do you think they'll get approved? and if so, what will be their effect on the price of Bitcoin Let us know in the comments section below. As always, thank you so much for watching and we'll see you in the next one.

Wall Street Millennial Signing out.