The recent entry of Morgan Stanley into the US spot bitcoin ETF market has been viewed by some as a catalyst to end the current crypto bear market, thanks to the vast distribution network of the Wall Street wirehouse's $8 trillion advisory business. However, Blockstream CEO Adam Back, an early contributor to the Bitcoin community, cautions that the process is slower than most people think. The bitcoin ETFs are a significant development in terms of positive market signals, but their impact will not be immediate, Back stated in an interview with Coindesk.
Institutional adoption is a gradual process, and it may take up to a year or 18 months for investors to fully allocate their funds. Back attributes the delay to the fact that fund managers have not yet adjusted their portfolios to include the recommended 2% to 4% allocation to bitcoin, as suggested by BlackRock. The build-up of institutional investment will occur slowly, creating a tailwind for the market. Back also notes that the regulatory environment, particularly in the US, has improved under the current presidency, with the introduction of a new legislative framework for crypto and the launch of a token shop.
This has encouraged other jurisdictions to follow suit, such as the UK's Financial Conduct Authority approving ETFs for retirement accounts. The establishment of bitcoin ETFs has given the industry new allies, including BlackRock, Morgan Stanley, and Fidelity, which will defend their business interests and lobby against regulatory interference. Another factor influencing bitcoin's price is its cyclical nature, driven by the quadrennial halving event, which reduces the supply of new tokens by 50%.
Although some commentators believe the four-year cycle is breaking, Back suggests that the possibility of a price slide remains, driven by market expectations. However, institutional flows, such as ETFs, sovereign and sovereign wealth fund investments, and direct purchases of bitcoin, will eventually overwhelm the sellers and drive up the price. Back also addresses concerns about quantum-computing hardware potentially breaking Bitcoin's cryptography, stating that while institutions may be paying attention to this risk, it is not a significant factor in the current market. Overall, Back's assessment is that the influx of institutional investment in bitcoin will be a gradual process, driven by a combination of factors, including regulatory improvements, market expectations, and the cyclical nature of the cryptocurrency.