Wall Street Bets on Bitcoin: Bull Market Fence-Sitters OR True Believers in Crypto?

Source: Bloomberg

Compiled by: BitpushNews Yanan

Now, traditional finance has married the crypto world, forming a community of shared interests (whether good or bad).

For JPMorgan CEO Jamie Dimon, cryptocurrencies are nothing more than "pet rocks"—(Translator's note: Pet Rock was a popular toy in the United States in the 1970s, essentially a regular rock sold as a fun pet to care for), completely worthless. For stock guru Warren Buffett's longtime partner Charlie Munger, cryptocurrencies are "extremely foolish." And U.S. Senator Elizabeth Warren believes that only terrorists, drug dealers, and scammers would find cryptocurrencies appealing.

The facts may be as they say. But there are some things you need to know about Bitcoin: it will not disappear in the short term. On the contrary, over time, Wall Street's resistance to it is gradually dissipating.

Recently, the crypto market has rebounded strongly, with Bitcoin's price soaring, first breaking through the $40,000 mark, then consecutively surpassing $50,000 and $60,000, surprising seasoned financial professionals who were previously skeptical about the crypto market. This wave of strong growth has ignited new optimism, with many experts firmly believing that the underlying demand for Bitcoin is strong and enduring—whether it’s young players, older investors, or well-funded institutional giants, the broad participation from various circles provides strong support for Bitcoin's market prospects. Even the previously perceived biggest threat to Bitcoin, the expectation of interest rate hikes in the U.S., has failed to dampen investors' current enthusiasm.

"No matter what Jamie Dimon or his good partner Elizabeth Warren say," said Michael Novogratz, founder and CEO of crypto investment firm Galaxy, in an interview, "many people still believe Bitcoin has value." Michael Novogratz is also one of Bitcoin's staunchest supporters.

This ongoing demand for Bitcoin presents an urgent dilemma for the investment industry. Even if Bitcoin dons the regulatory-friendly ETF cloak, traditional investment giants can still choose to continue avoiding this asset class known for its volatility and susceptibility to scandals. For example, the super-conservative Vanguard Group has adopted this approach of avoiding Bitcoin assets.

Another option is to cater to clients' crypto needs, even if it means taking on a range of risks. Companies like Bank of America Merrill Lynch and Wells Fargo have recently joined this camp, allowing some brokerage clients to invest in new Bitcoin exchange-traded funds (ETFs), while simultaneously prohibiting financial advisors from recommending such products to clients.

Bitcoin's Surge After ETF Launch

Recently, Bitcoin's price has surged, partly due to the successful launch of nearly ten related funds.

"Wall Street will chase anything that can make money, but that doesn't mean these things are good or bad," said Michael Rosen, chief investment officer of multi-asset investment firm Angeles Investments. He added that he believes the faith in cryptocurrencies is almost delusional.

However, the influx of massive funds has become an undeniable fact. Currently, the ten spot Bitcoin ETFs trading in the U.S. market have attracted approximately $8 billion in net inflows, with funds managed by investment giants Fidelity and BlackRock dominating. According to Bloomberg Intelligence data, BlackRock's iShares Bitcoin Trust accumulated as much as $10 billion in just seven weeks, a speed that is unprecedented in ETF history, even surpassing the achievement reached two years after the first gold ETF was launched in 2004. This fully demonstrates Bitcoin's appeal as a new investment tool and its market potential.

Record Inflows into Newly Launched Bitcoin ETFs

BlackRock's Bitcoin ETF continues to lead other similar funds, with inflows far outpacing the competition.

However, the large influx of ETF funds needs to purchase Bitcoin in a market known for "holding (HODL)." These hodlers are often happy to hoard Bitcoin and watch prices rise. Of course, everyone has their expected price levels, and the sudden surge in Bitcoin demand has also reactivated retail traders in the crypto market. As prices continue to climb, trading activity has surged, leading to a series of outages on Coinbase, the largest cryptocurrency exchange in the U.S., last Wednesday, with some user account balances temporarily showing as $0.

However, this massive surge driven by new capital could also amplify the inherent risks of crypto assets, which may now also affect well-known investment firms. Binance's Chief Security Officer Jimmy Su warned that bullish sentiment could lead to a surge in "rug pull" scams. In such scams, developers exaggerate a crypto project to attract funds, then the entire team absconds with the money.

Alongside Bitcoin's price increase, another seemingly mundane yet crucial factor is market risk. Traders who call themselves "degens"—(Translator's note: Degen is short for Degenerate, often used to refer to those who engage in high-risk, speculative crypto trading without proper research and due diligence)—are massively borrowing funds in pursuit of the upward trend, attempting to amplify profits through leveraged trading. Although two years ago, the collapse of crypto lending platforms like Celsius nearly brought leveraged trading to a halt, these traders seem undeterred and are even more actively seeking opportunities to amplify trading profits.

According to the latest data from CCData, since October last year, the total open interest in Bitcoin derivatives on centralized exchanges (supporting up to 100x leverage trading) has significantly increased by nearly 90%, reaching its highest point since the last crypto bull market collapse in early 2022. Data shows that open interest on mainstream cryptocurrency exchanges like Binance, OKX, and Bybit has surged to levels not seen since the peak of the 2021 bull market. Mauricio Di Bartolomeo, co-founder of Ledn, stated that the company's loan business backed by Bitcoin has returned to the scale it was at before the collapse of the FTX exchange at the end of 2022.

As a result, many predict that the recent surge will eventually see some pullback—this question is not about "if," but "when." Meanwhile, as Wall Street investors seek traditional risk-averse avenues, CME Group's crypto asset products are experiencing unprecedented trading volumes.

Be Prepared for Losses

"Investors holding high-leverage and high-risk cryptocurrency positions should be aware that an inevitable correction is coming," said Campbell Harvey, a finance professor at Duke University who studies the crypto asset market. "Using leveraged trading means being prepared to lose everything."

Only time will tell if holders of the newly launched ETFs are prepared for potential market downturns. Bitcoin, as an asset class without revenue sources and lacking large-scale use cases, has inherent volatility and is more susceptible to industry sentiment.

Despite fierce debates about whether Bitcoin's next key price level is $70,000 or $50,000, many firmly believe that the opening of the ETF market will fundamentally change the game, having a profound impact on both traditional financial markets and the crypto world.

"This undoubtedly pushes Bitcoin toward the path of legitimization," said Stephane Ouellette, CEO of digital asset platform FRNT Financial. "Nowadays, when you talk to hedge funds, they say: 'I used to worry about including Bitcoin in my list of tradable assets and tools, but now that BlackRock has joined, it's no problem.' It's like 'keeping up with the times,'" he added, noting that last Wednesday's surge was so strong that he couldn't leave his desk due to being busy answering calls and messages.

The newly launched Bitcoin ETFs make this crypto bull market distinctly different from previous cycles of boom and bust. Previous cycles were often driven by risk-loving speculators and ultimately collapsing crypto projects, such as unbacked cryptocurrency lending and the chaotic ICO boom.

Now, the investor group driving this surge has changed, with individual investors beginning to buy ETFs in large quantities. Novogratz stated in an interview with Bloomberg TV last Thursday that Bitcoin is welcoming "a new army of buyers." He further added in another interview, "This is a big deal because for the 11 years I've been involved in this space, the Baby Boomers and older generations have finally found a convenient way to buy cryptocurrencies."

Of course, hope and hype have always been significant driving forces behind crypto bull markets. Now, there is hope that this new batch of crypto investors will bring a fresh start. As financial advisors and fund managers guide more well-funded clients—whether individual investors, institutional investors, or sovereign wealth funds—into this suddenly investable asset class, Bitcoin's prospects will look even brighter.

"I think Wall Street has only completed 10% of its transformation because traditional financial institutions are inherently resistant to change and slow to act," said Edward Chin, co-founder of Parataxis Capital, whose clients include investment institutions like pension funds. "Given the enormous profit opportunities that asset management brings to Wall Street, I believe every large institution will ultimately have to formulate a crypto asset investment strategy or launch related products, if only due to client demand. Not offering related products means losing market share and revenue."

However, it is hard not to notice the many ironies of this new crypto era, which raises questions about how all this will affect the future of crypto assets.

On one hand, former FTX empire leader Sam Bankman-Fried has been convicted on fraud charges (related to the collapse of the FTX exchange) and is awaiting final sentencing. Meanwhile, his former competitor, Zhao Changpeng, who was in charge of Binance, is also set to be sentenced next month after admitting to violations of anti-money laundering regulations.

Another irony is that the arrival of this bull market is almost entirely credited to Gary Gensler, the chairman of the U.S. Securities and Exchange Commission (SEC). Previously, due to a series of enforcement actions against crypto companies and years of refusal to approve spot Bitcoin ETFs, he was seen as the number one opponent of the crypto industry. However, in January of this year, he finally compromised and cast a crucial vote in favor of the SEC's approval of the Bitcoin ETF proposal.

What Would Satoshi Think?

Yet, amidst all this excitement and doubt, perhaps the most thought-provoking aspect is the essence and future of the entire crypto industry. Bitcoin was created in 2008 by the anonymous founder Satoshi Nakamoto, with the intention of providing an alternative to the Wall Street and government-dominated financial system.

"The whole idea of Bitcoin is to be an alternative to the mainstream financial system, free from central regulation and other restrictions," said Michael O'Riordan, founder of ETF consulting firm Blackwater. "However, with the emergence of Bitcoin ETFs, the situation is quite the opposite. Satoshi might be so angry that he would jump out of his grave."

In fact, this statement itself is filled with irony: it has been 15 years since Satoshi created Bitcoin, yet no one truly knows who he/she is, or even if he/she is still alive. But in any case, Satoshi's invention—Bitcoin—remains vibrant.