The recent entry of Morgan Stanley into the US spot bitcoin ETF market has been seen by some as a catalyst to end the current cryptocurrency bear market, given the vast distribution capabilities of the company's $8 trillion wealth management network. However, Blockstream CEO Adam Back cautions that this process will take longer than expected.
Back, an early contributor to the Bitcoin community, notes that while bitcoin ETFs are a crucial development for positive market signals, institutional adoption is a slow process. "I think what people may have miscalculated is that institutional adoption is very slow," Back said in an interview.
"So the ETFs got bought, but when BlackRock is saying they recommend 2% to 4% allocation in their general stock portfolio, the fund managers haven't done that yet. And they will, but it's slower than people anticipate." According to Back, this build-up could take up to a year or 18 months.
He also mentions that some of this process is just beginning and will happen gradually, creating a tailwind for the market. As the CEO and co-founder of Blockstream, a company offering self-custody wallets and other services, Back has insight into the institutional investment landscape. The company was founded in 2014 by Back and other prominent Bitcoin developers.
Back is also the CEO and co-founder of BSTR, a bitcoin treasury company. The impact of regulatory frameworks on the industry should not be underestimated, Back notes. The current US presidency has introduced a new legislative framework for crypto and even launched its own token shop, improving the business environment for the industry.
This, in turn, has encouraged other jurisdictions to follow suit, such as the UK's Financial Conduct Authority approving ETFs for retirement accounts. While the US administration's stance on crypto may change, the establishment of bitcoin ETFs has created a lasting impact, with major financial institutions like BlackRock and Morgan Stanley now invested in the market. These institutions will likely defend their business interests, ensuring that the 'open for business' environment remains, even with changes in administration.
Another factor influencing bitcoin's price is its cyclical nature, driven by the quadrennial halving event. Even if this cycle is breaking, as some commentators suggest, the expectation of a price slide could still lead to one, simply because people expect it to happen. However, with the influx of institutional flows, such as ETFs and sovereign wealth fund investments, the market is likely to see strength, eventually overwhelming sellers. Quantum computing's potential impact on Bitcoin's cryptography has also been a topic of discussion, with some claiming it could break the cryptocurrency's security.
While Back acknowledges that institutions may be paying attention to this risk, he believes it is not an immediate concern. "Institutions are more systematic about risk," he said.
"So if there's a tail risk, even a small one, they want to know that it's covered."