The arrival of Morgan Stanley to the American bitcoin spot The ETF party earlier this month was characterized by some observers as the catalyst that will end the current cryptocurrency bear market thanks to the enormous distribution power of Wall Street’s $8 trillion advisory network.
Not so fast, said Blockstream CEO Adam Back, an early contributor to the Bitcoin community and recently named by the New York Times as the cryptocurrency’s pseudonymous creator, Satoshi Nakamoto, a claim he denies.
Bitcoin ETFs could be the most important development in recent times when it comes to positive market signals, more so even than a pro-crypto US administration, Back said, but it’s been taking longer than most people think. It won’t be immediate.
“I think what people may have miscalculated is that institutional adoption is very slow,” Back said in an interview with Coindesk. “So the ETFs were bought, but when BlackRock says they recommend a 2% to 4% allocation in your overall equity portfolio, the fund managers haven’t done it yet. And they will, but it’s slower than people anticipate.”
Investors don’t accumulate overnight, he said. Preparation could take a year, or even 18 months.
“Some of those things are just starting to happen and will happen slowly. So I think there is a tailwind.”
Founded in 2014 by Back and other prominent Bitcoin developers, Blockstream offers retail and institutional clients self-custody wallets, layer 2 network settlement, and asset issuance. Back is also the CEO and co-founder of BSTR, a bitcoin treasury company seeking to go public through a SPAC merger with Cantor Equity Partners (CEPO).
The Trump effect
While ETFs may outperform the government in driving the industry, there is still regulatory influence. Consider President Donald Trump’s pro-cryptocurrency term and compare it to the previous administration’s SEC and Chairman Gary Gensler’s attack on the industry.
Instead, the United States now has a presidency that not only introduced a new legislative framework for cryptocurrencies, but even launched its own token store.
“They have definitely improved the business opening framework in the United States, which has indirectly encouraged other jurisdictions to do the same,” said Back, who lives in Malta. “So the UK FCA [Financial Conduct Authority] Finally approved ETFs for retirement accounts and things like that. And I think maybe one or two more countries. “They look at each other.”
While Donald Trump’s United States may be open to the cryptocurrency business, the now-established bitcoin TFs have the power to transcend administrations, whether Republican or Democratic, Back noted.
“One of the reasons to assume that ‘open for business’ will remain, even under new administrations, is that now Black Rock and the other ETF providers are going to defend their businesses,” he said.
“They’re going to lobby banks to say they make a lot of money off of the bitcoin ETF. We don’t want you to interfere with that. And that’s why I think bitcoin now has new allies in Black Rock and Morgan Stanley and Fidelity and all these guys.”
Four year cycle
Another price factor to consider is the cyclical nature of bitcoin, a historical pattern driven by the halving event every four years, which reduces the supply of new tokens by 50%. The drawdown often leads to a relatively steady bull run followed by a bear market/recovery period.
Even if the four-year cycle is breaking, as some commentators believe, there is still a reasonable chance that a price crash could occur simply because “people expected it to happen. So they sold and made it happen,” Back said.
That logic is likely to change only when people see strength in the market, he said. That now comes in the form of institutional flows, such as ETFs, sovereign and sovereign wealth fund investments, and investors buying bitcoins directly or shares in bitcoin treasury companies like Strategy (MSTR), formerly called MicroStrategy.
“They are increasing their ability to buy bitcoin in different market conditions,” Back said. “MicroStrategy, in particular, has had accelerated success with their Stretch type of fixed income product. So they have been able to use it to buy a lot of bitcoin, and it has increased even in the last few weeks. So those repeat buyers plus new institutional and wealth management buyers will eventually overwhelm the sellers.”
Strategy’s Stretch (STRC) is a perpetual preferred stock designed as a high-yield income instrument backed by bitcoin.
Quantitative
In addition to answering questions about his identity, Back has also been fielding a series of claims about quantum computing hardware progressing faster than expected and its power to break Bitcoin cryptography.
“People are trying to say it’s a factor,” Back said of quantum technology’s effect on the price of bitcoin. “But I think there’s a lot of information asymmetry in these markets, meaning that things you think are perfectly clear turn out to be confusing to other people, and your uncertainty affects their decisions.”
That said, the recent round of quantum doomsayers may make institutions pay some attention, Back admitted.
“Institutions are more systematic about risk,” he said. “So if there’s a tail risk, even a small one, they want to know if it’s covered. To retail investors, it sounds like something in the distant future that they might not really care about. But institutions will think a decade ahead and ask, ‘Is this a 1% risk? Is there an answer to that?’ They will check things like that.”
