We saw this one coming.
Once Wall Street gets it claws into something, it runs with it. In January, the first Bitcoin ETF (based upon spot pricing) rolled out in the United States. This, it seems, set of a flood of crypto related activity by Wall Street. Applications to the SEC started to come based upon many different product ideas.
We are also seeing the adoption of these ETFs increasing. Many entities are starting to establish a stake, spreading the exposure out further.
It appears this is only going to accelerate. The minds in these financial institutions are going full tilt. Wall Street was granted a new toy and they are playing with it.
In this article we will dive into some of what is taking place with Bitcoin and Wall Street.
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Wall Street: Major Bitcoin Advocates
Wall Street loves Bitcoin. Actually, it loves all of cryptocurrency.
Now, don't get me wrong. As a future asset, it could care less. What Wall Street likes is they can make money off Bitcoin. This is not done so much through speculation or trading like the rest of us. Instead, they simply build products which they sell into the market place.
The Bitcoin ETFs are a prime example. Blackrock has over $15 billion under management. It is charging a percentage of that each year as a fee (I believe it is .25% but it might be more). If this keeps growing, so does the money Blackrock receives.
Speaking of that ETF, it is taking some business away from Grayscale:
Morgan Stanley has revealed a substantial investment of $187.79 million in BlackRock’s iShares Bitcoin Trust, according to its recent Form 13F filing with the U.S. Securities and ⇪ Commission×.
Source
This is not a great surprise as Blackrock has a long established relationship with these banks. There is also the factor of what Grayscale is charging as a fee. It was hesitant to lower its fees to match what others are charging.
Another story that keeps expanding comes from the State of Wisconsin. It has started to move into Bitcoin, through the same Blackrock ETF.
The State of Wisconsin Investment Board (SWIB) has significantly increased its investment in Bitcoin, NOW holding nearly $99 million worth of BlackRock’s iShares Bitcoin Trust (IBIT) ETF.
This was the first named state investment that was going into Bitcoin. I haven't followed closely to see what others have jumped on board.
However, this portfolio is sitting just under $100 million. That is a large chunk of change. Ironically, I imagine the money is small relative to some of the state investment funds for New York, California, or Texas. Wisconsin is a rather small state as compared to some others.
There will likely come a time when those other funds follow this same path to some degree. The percentage might be smaller but the numbers larger.
Leveraged ETF
The United States Securities and Exchange Commission (SEC) just approved a leveraged ETF based upon MircoStrategy.
Michael Saylor, the founder and CEO, has long been a Bitcoin advocate. His firm started accumulating Bitcoin a number of years ago. The majority of the company holdings are centered around this.
It was only recently that its Bitcoin totals were eclipsed by Wall Street. The firms issuing the ETFs have the Bitcoin in custody as per the SEC requirements.
For an individual firm, however, Microstrategy might still be the largest.
Here is where Wall Street does Wall Street things.
The new leveraged MicroStrategy ETF, MSTX, seeks to provide 175% long daily targeted exposure to MicroStrategy.
So if the returns on Bitcoin aren't enough, why not leverage it higher? Wall Street thinking at its best.
“We’re amplifying the potential for investors seeking long-leveraged exposure to Bitcoin. Given MicroStrategy’s inherent higher beta compared to Bitcoin, MSTX offers a unique opportunity for investors to maximize their leverage exposure to the Bitcoin market within an ETF wrapper."
Institutions that know what they are doing can take advantage of this product to garner larger returns. It is actually a strong product to have available.
We will likely see hedging products that work in a similar fashion but on the downside. If one can get 175% return on a move up, there should be a way to accelerate it on the downside.
That will be Wall Street's thinking and one the SEC will go along with.
Wall Street Is Predictable
We are going to see the products related to cryptocurrency coming from these financial institutions only increasing over time. This is a major money maker for them.
It is likely that, as crypto gets larger, Wall Street will simply expand more with it. We have only a few cryptocurrencies that could realistically operate as an ETF. Bitcoin and Ethereum were approved. Many believe Solana will join the party.
As we can see with the MicroStrategy, Wall Street can go in directions that we did not foresee. This is what it does.
Of course, this is nothing more than a money grab. These institutions are extractive. They keep pulling funds out since they control the system. Notice how approval from the SEC to create these products is required. Do you think this would be given to just anyone?
It is TradFi and a concern to many involved in crypto. While the masses applaud hoping it will send their holdings up, others worry that we are simply destroying any opportunity of redesigning the financial system. Crypto that has the major banks as gatekeepers is no change.
We are seeing this with Bitcoin. Wall Street is already putting its fingers all over it.
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