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 bear market in cryptocurrencies, thanks to the vast distribution network of the company's $8 trillion wealth management division. However, according to Blockstream CEO Adam Back, an early contributor to the Bitcoin community, this development, although crucial, will take longer to materialize than expected. Back, who has been rumored to be the pseudonymous creator of Bitcoin, Satoshi Nakamoto, emphasized that institutional adoption of bitcoin 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.' The process of investors allocating funds to bitcoin can take up to a year or even 18 months, according to Back. 'Some of that stuff is just starting to happen, and it will happen slowly.
So I think there's a tailwind.' Blockstream, founded in 2014 by Back and other prominent Bitcoin developers, offers self-custody wallets, layer-2 network settlement, and asset issuance to both retail and institutional clients. Back is also the CEO and co-founder of BSTR, a bitcoin treasury company planning to go public via a SPAC merger.
The influence of the US presidency on the crypto industry has been significant, with the current administration introducing a new legislative framework for crypto and launching its own token shop. This has encouraged other jurisdictions to follow suit, such as the UK's Financial Conduct Authority approving ETFs for retirement accounts. While the US presidency may change, the establishment of bitcoin ETFs has created a lasting impact, with major financial institutions like BlackRock and Morgan Stanley defending their business interests in the cryptocurrency market. 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%.
This often leads to a bull run followed by a bear market and recovery period. Even if this cycle is breaking, the expectation of a price slide can become a self-fulfilling prophecy.
However, with institutional flows, such as ETFs, sovereign wealth fund investments, and direct bitcoin purchases, the market is expected to gain strength. 'They are growing their ability to buy bitcoin in different market conditions,' Back said. 'MicroStrategy, particularly, has been having an accelerated success with their Stretch kind of fixed-income product.
So they've been able to use that to buy a lot of bitcoin, and it's escalated even in the last few weeks. So those recurring buyers plus new institutional and wealth management buyers will eventually overwhelm the sellers.' The recent advancements in quantum computing have also raised concerns about their potential impact on Bitcoin's cryptography. While Back believes that quantum technology is not an immediate threat, institutions are taking a closer look at the potential risks.
'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.'