How much BTC Wall Street can buy
3 min readBlackRock shot the bird with the Bitcoin Spot ETF. Bitcoin (BTC) turns green and investors hope for an explosion in market capitalization. After all, if the five largest wealth managers in the world shifted just one percent of their capital – around 250 billion US dollars – into Bitcoin, the entire crypto market would benefit. However, Bitcoin is limited to just 21 million pieces. So while demand continues to rise, supply is extremely limited — especially since much of it is already in the hands of long-term investors, also known as hodlers.
Since it is a spot ETF, BlackRock, Fidelity and Co. have to physically secure the Bitcoin they are storing. Not as a minted coin, but via Coinbase, for example. This is where the problem comes in: Since even crypto exchanges only have a limited number of Bitcoin, the supply is shrinking, although the demand may not yet be satisfied. However, it will probably take some time before the US Securities and Exchange Commission (SEC) approves the ETF applications. The SEC’s decisions could impact Bitcoin’s liquidity.
This is how liquidity works with Bitcoin
Liquidity describes the ability to convert Bitcoin into another asset class quickly and with almost no price distortion. An example: Suppose you own a bitcoin and want to sell it. In a liquid market, bitcoin could be sold without much trouble and with minimal price volatility. Because: As a rule, there are enough buyers who are willing to buy Bitcoin at a fair price. In an illiquid market, on the other hand, it is more difficult to find a buyer. The low demand means that the bitcoin has to be sold at a lower price.
The liquidity of a market is often determined by trading volume. The following applies: the higher the trading volume, the more liquid the market. At press time, Bitcoin’s trading volume is $16.2 billion. Compared to the same month last year there is a clear downturn. So how liquid is Bitcoin right now? Can BlackRock and Co. even buy enough Bitcoin?
Bitcoin: Is there enough liquidity?
A total of over four million bitcoins are on offer, almost 75 percent of which are available at short notice. That’s still $124 billion that the world’s largest wealth managers could invest. After that it gets tight: around 15.2 million Bitcoin are illiquid. In other words, investors are not parting with their assets so quickly.
BlackRock and private investors fight over BTC
At least the well-known crypto celebrities are counting on it, including Gemini founder Cameron Winklevoss and Bitcoin bull Michael Saylor. The latter fears that private investors could be crowded out by increasing institutional demand. Crypto analyst Anthony Pompliano, on the other hand expected a tug of war between both parties:
We have institutions and individuals struggling to get their share of the 21 million BTC that have ever existed. The retail investor has now had a head start for 15 years and has accumulated all of the Bitcoin that has been put into circulation.
If “Wall Street and BlackRock join the market,” Pompliano said Bitcoin could become “very illiquid” because retailers “don’t want to sell to Wall Street.” The only thing that can move in this constant system is the price.
