Key Points
- Spot Bitcoin ETFs are nearing approval at major wirehouses, according to Bernstein analysts.
- Bernstein maintains a $200,000 target for Bitcoin by the end of 2025.
Analysts at Bernstein, a research and brokerage firm, suggest that while some argue the spot Bitcoin ETF trade is over, they are overlooking two important aspects.
Understanding the ETF Trade
The arguments against the Bitcoin ETF trade suggest that early allocations are driven by retail investors, while institutional involvement is limited to the “cash and carry” trade, rather than net long positions. This implies that ETF flows are not genuine, according to analysts Gautam Chhugani and Mahika Sapra.
Recent 13F filings revealed that institutional participation in spot Bitcoin ETFs was just 22%. Moreover, the increase in liquidity in CME Bitcoin futures contracts post-ETF launch is evidence of the basis trade.
Spot Bitcoin ETFs: Near Approval
However, Chhugani and Sapra argue that spot Bitcoin ETFs are close to approval at major wirehouses and large private bank platforms in Q3 or Q4 this year. They believe that the institutional basis trade is a stepping stone for adoption, and these investors are now considering “net long” positions as they become more comfortable with the improving ETF liquidity.
The basis trade refers to a strategy where institutional investors arbitrage the difference between the spot and futures prices. They buy the spot Bitcoin ETFs and sell the CME Bitcoin futures contracts, aiming to make a profit from the price spread when the futures contract matures.
The analysts believe that the ‘basis trade’ is mainly driven by hedge funds, accounting for about 36% of the institutional allocation. They also predict that the next step after the basis trade is evaluating ‘long’ positions.
They also suggest that allocations related to financial advisors represent actual demand. They believe growth will be driven by larger advisors approving ETFs and substantial allocation headroom within existing portfolios.
Bitcoin Adoption as Treasury Reserve Asset
Another factor is the increased adoption of Bitcoin as a treasury reserve asset. New FASB guidelines make it easier for corporations to hold the asset on their balance sheets by accounting for mark-to-market gains rather than only impairment losses. They anticipate a fresh incremental demand from corporate treasuries in 2024, with MicroStrategy and Bitcoin miners leading the demand today.
Despite the recent outflow from U.S. spot Bitcoin ETFs, the Bernstein analysts expect net inflows to begin accelerating again. They expect Bitcoin ETF inflows to again accelerate in Q3/Q4 and believe that the current volatile markets are providing new entry levels, before the next leg of institutional demand picks up.
Price Target for Bitcoin
Chhugani and Sapra raised their price target for Bitcoin to $200,000 from $150,000 by the end of 2025. They attribute this increase to the expected unprecedented demand via the spot Bitcoin ETFs and Bitcoin miner marginal cost of production modeling. They also anticipate Bitcoin to reach $500,000 by the end of 2029 and $1 million by 2033.
They believe that Bitcoin in the current $60,000 range is equivalent to prices of under $10,000 in June 2020, at the same interval post-Bitcoin halving. Despite Bitcoin’s significant 53% rally from around $42,000 at the start of the year, they believe it may still be early in the cycle.
The analysts also note the increased visibility to institutional demand driven by the ETFs and the organizational marketing push by leading asset managers. They suggest that asset managers have every incentive to push harder on marketing and distribution to scale their crypto business.
It should be noted that Gautam Chhugani holds long positions in various cryptocurrencies.
