A US-based Spot Bitcoin ETF: What It Is and Why It Matters (Written at a 10th Grade Reading Level)

That’s neat…but all this still feels like an overreach – why all the maddened excitement over stock listings?

You know that zen/blacked out state that Will Ferrel’s character enters during the debate scene of Old School?

Brace yourselves. We’re about to go to a similar place…

*Inhale*

Having a spot Bitcoin ETF live on US stock exchanges means a whole new type of money can now enter the crypto space (by proxy of the stock market).

Big money. Like, stupid big money (think: funds that collectively manage tens of trillions of dollars).

There’s that…plus:

A lot of these asset managers are looking for places to ‘park’ their client’s money, for years at a time.

Meaning large chunks of Bitcoin’s supply will be consumed and not made available again for a hot minute.

And sure, there’s a total supply of 21 million Bitcoin, 19M of which has already been released and currently hovers around $1 TRILLION of total market value…

Which means the $50B to $100B of estimated investment that these ETFs will see in 2024 won’t reeeeally do much to move the price…right?

What can a purchase of 5-10% of the total supply, sensibly do over a year?

Let’s dig in to some numbers…

Sure, Bitcoin has a hard cap of 21M coins – but it’s estimated that 6M+ of them have been lost over the years, which means we’re dealing with a total supply closer to 15M.

Which is a factor…

But it still doesn’t put enough of a dent in the supply to warrant the wild predictions of a $100k-$200k (ETF assisted) BTC price in the next 12-18 months.

What brings those predictions into a bit more of a potential reality is this:

As of this writing, there’s roughly 1.88 million Bitcoin available to buy on crypto exchanges around the world (or $87.38B worth).

Or another way to put it is:

While the total supply of Bitcoin is worth close to $1 trillion ($905B to be exact), the current known purchasable supply is only $87.38B.

Which opens to the possibility of this estimated $50B to $100B of ETF investment, to trigger the following scenario (or something like it):

• ETFs buy up most/all the available BTC → Bitcoin becomes near-impossible to purchase for a period of time…

• Prices go way up to meet demand → which entices holders to sell…

• Bitcoin is available to buy again, but still in limited quantities and at a much higher price.

And to top it all off…

These ETFs are coming at a point in time that may well create the ‘perfect storm’ of reduced supply and increased in demand.

Supply reduction:

In April 2024, the new Bitcoin being created/put onto the market each day will be cut in half, from 6.25 BTC released every 10 mins, to 3.12 BTC.

Increased demand:

The Federal Reserve has announced its plans to cut interest rates multiple times in 2024.

Rate cuts = cheaper loans/lines of credit = easier access to capital for investors and more disposable income for every day folks = more money flowing through the economy…

Some of which will end up in Bitcoin and Bitcoin ETFs, increasing overall demand.

*Exhale*