What is a Bitcoin ETF Anyway?
Level 2 - Value Investor
Welcome Avatar! Since we’re getting ready for the ETF approval on Wednesday Jan 10 this post will get you up to speed on how things work. In general, big players do not walk into a crypto exchange from Sudan with a VPN to purchase $20M of computer coins at spot.
They work slowly and surely just like old money.
Part 1: Why Mass Approval
One of the major issues with ETF approvals is that the first one out of the gate typically gets the majority of the money. This is why the gold ETF is so large. If you’re the first out in the USA, you typically get the most units of the asset.
Keeping it simple, it costs less with scale. If you can already hold $100 billion of gold in a vault inside a mountain, you can probably add another $10 billion without much work. Now if you don’t have scale and you want to simply hold $100M of gold bars, you’re in trouble since the security set up gets bigger and bigger and your costs go up.
Imagine trying to store $100M of gold in your house with no security.
In short, scale leads to lower costs so getting as much as you can early creates a competitive edge (lower fees)
“Fair and Balanced”: At this point, unless you’re living under a rock, you know that life and big money markets are never fair and balanced. Politicians have trading accounts that make Warren Buffet look like an amateur investor.
Hedge funds constantly “close short positions” just before an M&A deal gets leaked (since nothing was gained there is no technical financial benefit)
That said, there is an appearance of fairness with the BTC ETF. If they approve all of the ETFs at once, it’s much harder to claim they gave a head start to one organization over the other.
Part 2: Onto Approval!
Now that all of the delays were used to line up the ETFs, it’s time to play the guessing game: how much do they buy now and how much do they buy later.
Quick Rule on Purchasing: When you set up an ETF you don’t go on Coinbase and click buy. This is similar to Crypto Twitter assuming that company debt is like a leveraged position on BitMex.
Anyone trading with significant size (8 to 9-figures) is going to use Over-the-Counter transactions to avoid moving the spot market. This doesn’t need to be over complicated.
An agreement is written to buy $100,000,000 of BTC at ABC price and instead of using this to mess up the order book, the amount is sent directly to avoid moving the public market.
Initial Is Meaningless: Beyond the natural move up expected the day it is approved, the seed funding is irrelevant. You’ve seen numbers from $10M to $200M per ETF. Even if we were to assume $1,000,000,000 in total that would be 2.4% of a single day of daily volume (Not a year. A day).
Note: for those that care, OTC market for institutional numbers can get up to $500 million without moving the spot price based on our estimates/contacts.
Onto the Good News: This all sounds like a nothing burger if you have a time frame of five days. It sounds like a “sell the news” event.
The problem is time frames. You know when the money goes into the ETF, those Bitcoins are effectively gone. Gone for good much like the consistently increasing BTC HODL wave numbers.
Logical Conclusion from All This: The price going up on the announcement is largely FOMO/Marketing and near term stuff you shouldn’t care about. What is more interesting? How much consistent demand comes the next 2-3 months.
Generally speaking, you’d want to see the price go up about 3-4 months after the approval. Considering the volatility we’ve seen from the last 2 weeks, rumors have moved the price nearly 10% up and down.
Try to ignore that and focus on the price 3-4 months out since you know: 1) price going up means more fees collected by the ETFs, 2) you know that Wealth Management is drooling to get these products and 3) there will be a bombarding of commercials for the coming months.
Part 3: Some Irony and Suggestions
In the end, you want the price to go up. However. You’re relying on Wall Street to use their marketing to send all the coins to Wealth Management and other rich individuals.
The Team Has Arrived to Pump Your Bagz Anon.
Irony Aside: 1) remember the goal of crypto - SELF CUSTODY. An ETF is just another expensive way to own Bitcoin because you’re charged a fee when you could be charged $0 with a basic hardware device, 2) at this point the “suits” are your friends, they are going to convince many old rich guys to buy your bags and 3) if you assume that BTC will be the last ETF.
Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are *opinions* written by an anonymous group of Ex-Wall Street Tech Bankers and software engineers who moved into affiliate marketing and e-commerce. We’re an advisor for Synapse Protocol 2022-2024E.
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