Bitcoin Spot ETF May Not Be As Bullish As You Think

There is significant interest in a bitcoin spot ETF being approved in the United States. But what if it is not as bullish as everyone believes?

Let me explain.

The spot ETF will bring in tens of billions of dollars into the bitcoin market. For this example, we can go to the extreme and say that $100 billion will flow into the asset. When that happens, the $850 billion market cap digital currency should see the price of Bitcoin increase by approximately 12%. That doesn’t sound like much, right? That is not the full picture though.

We must remember that approximately 70% of all bitcoins in circulation have not moved in over a year, so we can amplify the analysis by saying $100 billion will flow into a liquid market cap of about $255 billion. That is a ~ 40% increase. With bitcoin’s price at $43,000 this morning, the 40% increase would only bring bitcoin to a $60,000 price point.


Why is this important?

Even if the Bitcoin spot ETF has an insane inflow of $100 billion, these financial products still won’t bring Bitcoin back to the all-time high price of $69,000. I believe we will see a new all-time high price for Bitcoin in the next 18 months, but I don’t think the Bitcoin spot ETF will be enough to accomplish this milestone exclusively.

Thankfully, there are two other factors at play which should help. First, the bitcoin halving is planned for early Q2 of this year. The supply shock will reduce the amount of incoming bitcoin to the circulating supply from 900 to 450 per day. All you had to do was pay attention in your Economics 101 course to know that increasing demand via the ETF, combined with decreasing incoming supply via the halving, should lead to higher prices than the ETF could produce by itself.

Second, the Federal Reserve and central banks around the world are going to be forced to return to lose monetary policy over the next 18 months. We saw Fed Chairman Jerome Powell hinting at interest rate cuts on the horizon, but I don’t believe that will be enough. The Fed will have to restart the expansion of its balance sheet as well.

As we saw during the COVID market boom, loose monetary policy increases the speculative nature of humans, which can drive free-market assets like Bitcoin hundreds of percent higher. I abandoned the price target game long ago, so I don’t have a concrete number to give you.

However, I can see Bitcoin increasing hundreds of percent from the current levels throughout the next bull market. I just wouldn’t hold my breath waiting for Bitcoin to be 10x in the cycle — that is much harder for me to see happening. But who knows, I am wrong all the time. Investing is hard. Understanding the future is nearly impossible.

The only thing I am certain of is that Bitcoin will continue producing block-after-block of transactions and hundreds of millions of people around the world will find value in that.