Coinbase, MicroStrategy and Bitcoin mining stocks slide amid spot ETF launches

A lot of hype surrounded the bitcoin ETFs, and it was hard not to get sucked in to if you were following much of the coverage on twitter/x. I'd be lying if i said i wasn't secretly hoping for a nice pump :)

Still, by all measures the launch was a big success, setting new records for launch day inflows (even if you net off the assumed GBTC and other proxy rotation).

A couple of things to keep in mind though.

• The ASX:CYRP ETF isn't a great exposure to pure BTC (lots of miners and other proxies in that fund). Neither is GBTC given the very high expense ratio it has relative to the new entrants. So there's be a lot of rotation to account for (i.e. a lot of selling to offset the buying of the underlying). Not all parties would sell and buy straight away, especially if the price is falling.
• GBTC has US$27b in AUM, so this selling pressure could last a while (although tax considerations may limit this -- ie it will be better to cop the higher management fee than get slugged with a big CGT bill)
• Platforms and advisors haven't yet started directing flows. From what I understand it could be weeks to months before they even have the green light. Months or even years more before they fully allocate client funds.
• ETFs run on T+1 or T+2 settlement, and we've had only 2 days of trade. So that can delay a lot of the spot buying.
• Much of the volume needed for the ETFs would have been sourced from OTC desks (ie outside spot markets). From what I've read, much of this volume is now depleted so we will likely see more demand hit the spot market in the coming weeks -- assuming net inflows continue.
• The ETF trade was well positioned ahead of time, and as @west said I reckon there was plenty of "sell the news" volume (and it would have netted a very nice short term profit too given that BTC is up over 100% in the last year)

The bigger picture is that we have a new and extremely large pool of capital that now has access to bitcoin. But it will take time for allocations to be made -- I think people overestimated the price impact on day 1, but significantly underestimate it over a multi-year period.

Remember too that there's only 900 coins in new supply each day, and that will drop to 450 in less than 100 days (the 'halving', which is to do with the set supply issuance). There was something like $650m in net inflows on day 1 for the ETFs, so even if we assume typical daily net inflows are 1/10th of that, you have a serious demand/supply imbalance (ie. 900 new coins from miners per day, versus 1,500 coins needed to satisfy US$65m in net inflows -- assuming US$45k/coin price). This ignores all other sources of demand and assumes all newly minted coins are immediately sold.

After April, you'd need only US$20m/day in net inflows across all ETFs to completely soak up new supply. A very low hurdle.

The other significance here is that the ETF approval and listings essentially legitimise bitcoin. As do new FASB rules. The CEO of the worlds largest asset manager (Larry Fink) is out there on CNBC singing its praises, and he's not alone. You even have instos like Morningstar producing research that shows a modest exposure (1-5%) can significantly lift the Sharpe ratio of a portfolio

The ETFs should also help knock the edges off some of the historic volatility too as increasing numbers of advisors & managers buy/sell to adhere to model portfolio weightings.

Anyway, I know I go on too much about it, and only a minority of members have any interest (remember you can mute threads). But hopefully this helps those that are tracking the story.

Super helpful, thanks @Strawman ! Not sure I have the stomach for a large investment in this space, but it is interesting to try and understand it.

After sitting sitting around the school lunch table as a teacher and putting my lunchtime burritos in my ears in 2017 to avoid the conversation, I am proud to say I have changed my mind on BTC. Teachers are renowned for the get rich quick scheme and front running lunacy and hype and even though my risk tolerance is really high I thought crypto was nuts and nonsense. Even up to 6 months ago it was confusing and seemed risky to me. Everything carries risk, and I don't know a lot about the technical factors, but I don't need to in order to understand it's thesis, so although Buffet suggests that risk is not understanding, I feel confident enough to now plunge deeper.

I will be buying a large stake (30-50k) in the coming weeks. I have recently read Broken Money by Lyn Alden and the 2nd half of the book was extremely potent. I've read a bunch of investing books but it's funny to me that a book about money, the thing to invest with and for, was never an idea to me to question it's evolution and future. The book required a push from the 'We Study Billionaires' podcast where the author provided a great interview. We live in a sheltered and fortunate land where we can't possibly understand the implications of monetary debasement and debt has around the world. 27m people in a world of 8B... Basically what we see is nothing and we don't know s*** to put it plainly.

The best comment I read was that money chases scarce assets.

I'd love to stay more informed on the topic of BTC through Strawman and I'd love for you or someone to direct me how to best do so via the platform. Thanks in advance :)

Firstly @Saasquatch well done to maintaining an open minded in arriving to the brave decision to invest in BITCOIN.

I will say from experience the learning journey is steep and immense as you explore the value, used case for BITCOIN.

Similar to you i have read Lyn Alden book Broken Money as well as her newsletters which are released on a regular basis and she provides great insight in looking at the macro environment and probable outcomes for the future.

Three examples to highlight:

• Bitcoin has evolved to be a base layer, peer to peer and open sourced platform, with subsequent layers being built on top of it which specifically serve a purpose, eg. Lightening network which is a open channel that operates with greater speed, is more private and scalable. This is similar to current fiat system in which fedwire is the base layer / settlement layer in which it settles 20 million transfers per month valued at 80trillion per month with banks and credit companies sitting on top of it as a second layer. What is most interesting in looking into the future is that due to multiple outputs Bitcoin has it is able to scale to do more transactions per month compared to fedwire

• Adam Back , cryptographer and current CEO of Blockstream and an early pioneer of digital asset research and invented Hashcash in 1997 in 2010 studied Bitcoin after the White Paper release the year earlier. Adam sought to provide feedback on how it can be approved and after several months explained that any change that was explored the tradeoff's would be be too large and thus Bitcoin can't be significantly improved . This continues to hold true 14 years later.

• Finally, enjoyed Lyn's explanation on the base and broad money supply distinction . Was very helpful in understanding the levers at play and impact in short and long term. Looking at the current debt cycle the current bank deposit liabilities to debt has grown from 23/1 in 2007 to 63/1 in 2023 highlighting the growing leverage we now operate and found it interesting to have explained the need for inflation to not reduce the size of the debt but also to increase the income for governments.

Rootrational on X is someone i found to be information whom published articles on the Bitcoin Platform Platform.

Continue to be bullish on Bitcoin and accumulate especially as the halving approaches.

All the best with your accumulation of BTC.

Welcome to the cult @Saasquatch :)

This comment of yours really aligns with my experience: "...it's funny to me that [money], the thing to invest with and for, was never an idea to question.."

Kind of like a fish discovering water.

Regardless of whether anyone has any interest in digital pet rocks, I agree with @wtsimis -- Broken Money is a must read.