Digital assets entered a new era of legitimacy with the launch of the first spot Bitcoin (BTC) exchange-traded funds (ETFs) in the U.S., and as the flow data for the ETFs show, there is a healthy level of demand for access to BTC once the technical know-how to deal with crypto is eliminated as a requirement to invest.
To gain deeper insight into how institutional players are approaching the digital asset arena, Kitco Crypto spoke with Victoria Bills, co-founder and Chief Investment Strategist at Banrion Capital Management. Banrion is an alternative technology platform for registered investment advisors (RIAs) that provides advisors and their clients with access to the tools and technology needed to allocate to alternative investments in an efficient and scalable way.
Addressing the recent gains in crypto and the buzz created by the launch of the first spot Bitcoin ETFs, Bills said there has been “a large influx of Wall Street investors who have been highly interested in crypto and wanted to a way to trade the commodity without needing to take ownership or expose themselves directly to the associated risks, but had no real access to the market until the emergence of the ETFs.”
“So the spot Bitcoin ETFs have allowed mainstream Wall Street investors, as well as RIAs, to gain access to these crypto coins,” she said. “Now, they’re trading them in much the same way that they trade stocks and bonds.”
“While the average crypto investor uses them more as a store of value and long-term investment, I think what’s happening in the markets right now is that the more mainstream investor who doesn’t quite understand how this asset works, but again, wanted access to it, is essentially playing around with the tool without quite understanding how to utilize it,” she added.
“Traditionally, the correlation between crypto markets and mainstream markets was that they had an inverse correlation,” Bills said. “Now we’re starting to see that correlation coming down, and I think that has to do with the introduction of those more mainstream investors who are utilizing it as a hedge or in response to what is happening in the stock or bond markets.”
She said the ETFs have impacted the negative correlation that existed between stocks and crypto by allowing more investors to get involved. “That’s led to more price stability and less volatility overall, along with an upward trending price.”
She noted that over the past couple of months, Bitcoin hasn’t experienced “those significant shocks that used to occur when it would drop like 20% in a day, only to bounce back up shortly after.”
“The launch of the spot BTC ETFs have been somewhat of a double-edged sword for crypto, where it provided stability in pricing, increased accessibility to the market, whether that’s indirectly or directly, but has also caused an increased correlation with mainstream markets,” which has made crypto less of a contrarian play and more tied to the fates of the broader financial market.
Bills said that the correlation between crypto and the stock market “is only going to get stronger with time because the average trader on Wall Street is going to utilize the crypto market as a hedge against U.S. markets.”
“I think that the use case for crypto overall for mainstream investors is yet to be seen, they just see the ETFs as a way to access the markets,” she said. That stands opposed to “someone who believes in using crypto as a way to purchase things or holds their tokens in hot or cold storage. Wall Street investors are seeing it primarily as a store of value, and not necessarily as a tool to buy and sell things.”
Bills sees the continued onboarding of traditional investors as further enhancing the correlation between crypto and the stock market and bringing more price stability to the digital asset market as the average investor, who is not predisposed to the HODL lifestyle, will focus more on “selling when prices are up, and buying when prices are down.”
Bitcoin liquidity
Another factor influencing the price action for Bitcoin is the available liquidity on exchanges, Bills said. “Liquidity is definitely a factor, and with the halving that’s coming up in April, that’s just going to increase its price even more. There are a couple of analysts I know who are projecting that the Bitcoin price could hit around $112,000 by the end of 2024, mainly due to supply-side pressure, but also because of the increased demand coming from the ETFs.”
She pointed out that BlackRock’s IShares Bitcoin Trust (IBIT) is leading the pack of newly launched products with more than $6 billion in assets under management (AUM), while the Bitwise Bitcoin ETF Trust (BITB), which is the ETF that she is most bullish on since they revealed the address of their on-chain wallet, recently surpassed $1 billion in AUM.
Bills noted that Banrion mainly helps investors become more familiar with alternative investments and doesn’t offer direct access to cryptocurrency investing at the moment, but they are on the hunt for partners that can help educate registered investment advisors and the wealth management sector as a whole about the growing asset class.
“We’ve been seeing high demand for it, particularly across our Gen Z and Millennials client bases,” she said. “We would love to partner with a spot Bitcoin ETF provider to help further spread awareness and access because it’s something that we anticipate will continue to see increased demand for moving forward.”
Bitcoin price target
On the topic of Bitcoin price targets in the near and long term, Bills said these depend on several macro factors, including interest rates, which she sees staying higher for longer.
“Rates are probably not going to get lowered in May, especially if CPI continues to come in hot as it has been,” she said. “If by some miracle the Fed decides to cut, I think that would be bad news for the markets given the inflationary pressures that we’ve been seeing.”
“If they do cut, I would be concerned for Bitcoin pricing,” she said. “If, however, the Fed decides to stay steady, which is what I am anticipating, then I see Bitcoin’s price continuing to hold steady. I’m not quite sure how far out that would continue, but that is my suspicion based on what we’ve been seeing.”
Bills added that there is also the possibility of a rate hike if inflation ticks higher, and said “Fed Chair Powell definitely has his work cut out for him.”
“The thing about having a rate cut is that it’s just going to make the market even hotter and will lead to a significant increase in inflation,” she said. “So while everybody wants a rate cut because they want markets to return to business as usual, I think that would be a disaster for the U.S. economy. Maybe that’s what people want – to have a great reset, so to speak, by just kicking inflation into high gear and seeing what happens.”
“But overall, the Fed does not deal in chaos, and the Fed does not want to set up market conditions where people fail,” Bills said. “Their job is to maintain inflation and keep employment steady, and at this point, they’ve been trying to do that to the best of their ability. Keeping rates either steady or increasing them would probably be the most likely approach they would take to continue to combat inflation, given employment rates.”
She said that while they are trying to fulfill their mandates, their actions have been “contrarian to what Wall Street wants, which is why everyone is upset with the Fed right now.”
In her view, “the only way the Fed would lower interest rates is if inflationary pressures started to come down. I suspect that what we’ve been seeing over the past couple of months with CPI is largely driven by seasonal purchasing, so if things begin to calm down between February and April, then maybe they will lower rates.”
She said as long as CPI remains elevated or continues to rise, it will be “very hard for the Fed to even consider a cut. That’s the name of the game, unfortunately. While everyone sees the need for rate cuts, the Fed is saying that ‘people are spending too much, and there’s no way we can give you a rate cut.’”
“That’s the chicken versus the egg scenario that they are stuck in right now,” she added. “If they see some more positive signs that people are not spending as much, that things have cooled down a bit, then maybe they’ll cut, but I think there is very little possibility of that happening.”
Bills noted that the current state of the world is highlighting the reason that Bitcoin was created in the first place, and now society needs to determine how it wants to utilize the asset.
“If it’s to be treated like an investment vehicle rather than for everyday transactions, it’s great for investors to own,” she said. “But if it’s supposed to be used as a means of exchange, then its price should remain more stable and accessible.”
“So there’s these two wolves, so to speak, that are in the crypto world,” Bills said. “One of them is using crypto as a means of exchange and as a commodity. Then there are those seeing it more as a store of value, like a stock or investment asset that can be exchanged for millions of dollars. Those two positions are contradictory because you can’t have a coin that’s worth a million dollars and expect people to buy groceries with it.”
“How people want Bitcoin to work is the question that we all need to think about at the end of the day.”
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
