(Bloomberg) — To Jamie Dimon, it’s no better than a “pet rock.” To the late Charlie Munger, longtime lieutenant to Warren Buffett, it’s “massively stupid.” And to US Senator Elizabeth Warren, it’s a great tool if you’re a terrorist, drug dealer or fraudster.
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Perhaps. But here’s something else about Bitcoin: It’s not going away anytime soon. And what was once almost universal resistance to it on Wall Street is disappearing day by day.
As the cryptocurrency skyrocketed in recent weeks back to lofty levels that had shocked the old guard years earlier — first $40,000, then $50,000, then, just days later, $60,000 — it became clear to many pundits that the underlying demand from people young and old, rich and poor, is simply too robust and steady to allow Bitcoin to collapse as the cornerstone of an asset class. Not even the rapid rise in US interest rates — long seen as a potential death knell for Bitcoin — was enough to curb the enthusiasm for long.
“Doesn’t matter what Jamie Dimon or Elizabeth Warren, his good buddy, said,” Michael Novogratz, the billionaire founder and chief executive officer of Galaxy Digital Holdings Ltd. and one of Bitcoin’s most long-standing supporters, said in an interview. “A lot of people believe there’s value here.”
This relentless demand has created an urgent dilemma for the investing industry. The legacy titans can continue to shun the famously volatile and scandal-prone asset even when it’s served in the new regulatory-friendly ETF wrapper. This is the approach that Vanguard, an uber-conservative shop, is taking. Or they can give their clients what they want, regardless of the long list of risks. Bank of America’s Merrill Lynch and Wells Fargo & Co. are among the latest firms taking that route, giving some brokerage clients access to new Bitcoin exchange-traded funds while stopping short of allowing their advisers to recommend them.
“Wall Street will embrace whatever will raise them money so that doesn’t let you know whether it’s good or bad,” said Michael Rosen, chief investment officer at multi-asset investment firm Angeles Investments, adding that he believes faith in cryptocurrencies like Bitcoin borders on the delusional.
What’s not a delusion is the money at stake. The 10 spot-Bitcoin ETFs that are now trading in the US have seen about $8 billion in net inflows, with funds managed by investing giants Fidelity and BlackRock taking the lion’s share. BlackRock’s iShares Bitcoin Trust alone has accumulated $10 billion in just seven weeks — the fastest an ETF has ever hit that milestone and a feat which the first gold ETF took more than two years to accomplish after it was launched in 2024, according to Bloomberg Intelligence.
All that new ETF cash needs to find Bitcoin to buy in a market famous for “hodlers” who are happy to hold tight to it and watch the numbers go up. Of course everyone has a price, and the sudden demand has recharged the retail traders in the crypto market itself. As the price went higher and higher, a surge in activity caused a spate of outages on Wednesday and temporary displays of $0 balances for some users of Coinbase, the largest US crypto exchange.
Yet the massive crypto rally inspired by the fresh cash also threatens to magnify the risks inherent in the asset class — risks that blueblood investment firms are now a party, too, as well, at least reputationally. For one thing, Jimmy Su, chief security officer at Binance, warns that the bullish sentiment could cause an upswing in “ rug pulls” — a type of scam in which a developer hypes up a crypto project to attract money only to then disappears with the funds.
An equally important — albeit more mundane — concern is simple market risk for Bitcoin. As the self-described “degen” traders chase the rally, they are loading up on borrowed funds to help max out trading profits after such leverage all but dried up with the demise of crypto lenders like Celsius almost two years ago.
Aggregate open interest in Bitcoin derivatives, which can be leveraged up to 100 times, has risen nearly 90% since October on centralized exchanges to reach the highest level since the beginning of 2022, when the last crypto bull run collapsed, per CCData. Crypto exchanges Binance, OKX and Bybit are all seeing a jump in open interest to levels not seen since the peak of 2021 bull market, according to CCData. The loan book at Ledn, which lends out money safeguarded by Bitcoin collateral, has returned to levels last seen before the FTX exchange collapsed in late 2022, said Mauricio Di Bartolomeo, co-founder of Ledn.
As a result, many expect that a reversal of at least some of the recent rally is a question of when, not if. CME Group’s digital asset products are experiencing record volumes as Wall Street investors seek traditional routes for hedging their risk.
‘Prepared to Lose Everything’
“The traders with leveraged, highly risky positions in cryptos should realize there will be an inevitable correction,” said Campbell Harvey, a finance professor at Duke University who studies digital-asset markets. “With leverage, you need to be prepared to lose everything.”
Only time will tell how prepared the owners of the new ETFs are for a potential downturn in an asset class that — with no revenue stream or practical large-scale financial functionality — makes it inherently volatile and susceptible to shifts in sentiment.
Yet regardless if the next major milestone for Bitcoin is $70,000 or $50,000, many believe the opening of the ETF floodgates has changed the game forever — both in the traditional financial market and the crypto world.
“It’s completely legitimized it,” said Stephane Ouellette, chief executive of digital-asset platform FRNT Financial. “Now when you talk to hedge funds, they’ll say ‘I was always scared to put Bitcoin in my list of tradeable assets and vehicles, but now BlackRock’s there, no problem.’ It’s a ‘get with the times’ kinda thing,” he said, adding that the buzz was so strong during Wednesday’s rally that he couldn’t leave his desk because of all the phone calls and instant messages he was receiving.
The air of legitimacy that the new ETFs provide sets this crypto bull market apart from prior boom-and-bust crypto cycles, which were driven by risk-embracing speculators and products that ended up collapsing all around them: crypto loans that sometimes turned out to not be backed by anything, and, prior to that, initial-coin-offering fundraising by startups that issued tokens but in many cases never actually produced a product.
Many individual investors buying the ETFs and driving this rally are different, too. Bitcoin is seeing “a new army of buyers,” Novogratz said on Bloomberg Television on Thursday. “This is a big, big deal because it’s the first time since I’ve been involved — which is, you know, 11 years — where Baby Boomers and older people have an easy way to buy crypto,” he added in a separate interview.
Of course, hope and hype have long been among the main drivers of crypto bull-market runs. These days, the hope is that this new class of crypto recruits is just the beginning, as financial advisers and money managers steer more deep-pocketed clients — not just wealthy individuals, but also institutional investors and sovereign wealth funds — into a suddenly investable asset class.
“I think Wall Street is only about 10% of the way there, given the traditional financial institutions are loath and slow to change,” said Edward Chin, co-founder of Parataxis Capital, whose clients include pension funds. “Given the massive revenue opportunity on the asset management side for Wall Street, I imagine every large player will eventually have to develop a crypto-asset investment strategy or product, if for no other reason than that the demand from their clients will mean that not having something available will mean losses in market share and revenue.”
Still, it’s hard not to notice an abundance of irony in crypto’s latest era — and wonder what it all means for the future of the asset class.
For one thing, it’s happening while Sam Bankman-Fried is awaiting to find out how much time he will spend in prison following his conviction on fraud charges related to the implosion of his FTX empire. His former rival Changpeng Zhao is also due to be sentenced next month after pleading guilty to charges including violating anti-money-laundering laws at the Binance exchange he once ran.
Then there’s the irony that this bull market is owed almost entirely to Securities and Exchange Commission Chairman Gary Gensler. He had formerly played the role of the crypto industry’s leading antagonist, due to the SEC’s barrage of enforcement actions against crypto companies and years-long refusal to approve spot-Bitcoin ETFs, before he finally capitulated and provided the swing vote needed for the SEC to approve the funds in January.
What Would Satoshi Think?
And perhaps the biggest irony of all: The spectacular renewal of the digital-asset market is a result of the Gensler-blessed marriage of the traditional financial industry and crypto. After all, when Bitcoin was conceived by anonymous creator Satoshi Nakamoto in 2008, the original cryptocurrency was supposed to provide an alternative to a financial system dominated by Wall Street and governments.
“The whole idea was for Bitcoin to be an alternative to the mainstream finance system, free of centralized regulation, etc.,” said Michael O’Riordan, founding partner of Blackwater, an ETF consulting firm. “With Bitcoin ETFs, the opposite has happened. Satoshi would be turning in his grave.”
Indeed, there’s even an irony embedded in that remark: It’s more than 15 years later, and still no one is exactly sure who Satoshi is, or whether they have passed away. For better or worse, however, Satoshi’s invention is alive and well.
—With assistance from Muyao Shen, Yueqi Yang, Katherine Doherty and David Papadopoulos.
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