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 crypto bear market, given the vast distribution power of the company's $8 trillion wealth management network. However, Blockstream CEO Adam Back cautions that the process is slower than many anticipate.
Back, an early contributor to the Bitcoin community, notes that while bitcoin ETFs are a crucial development for positive market signals, their impact will not be immediate. "I think what people may have miscalculated is that institutional adoption is very slow," Back stated in an interview. He explained that even when major institutions like BlackRock recommend allocating 2% to 4% of their portfolio to bitcoin, the actual implementation by fund managers takes time, often up to a year or 18 months.
Back emphasizes that investors do not rush in overnight and that the build-up of institutional investment is a gradual process. Despite the slow pace, Back sees a "tailwind" in the increasing adoption of bitcoin.
Blockstream, founded by Back and other prominent Bitcoin developers in 2014, provides self-custody wallets, layer-2 network settlement, and asset issuance to retail and institutional clients. Back is also the CEO and co-founder of BSTR, a bitcoin treasury company aiming to go public via a SPAC merger. The regulatory environment, particularly in the US, has been influenced by the Trump administration's crypto-friendly stance, introducing a new legislative framework for crypto and even launching its own token shop.
This shift has encouraged other jurisdictions to follow suit, with the UK's Financial Conduct Authority approving ETFs for retirement accounts. Back believes that the establishment of bitcoin ETFs provides a stable foundation for the industry, transcending political administrations. The involvement of major financial institutions like BlackRock, Morgan Stanley, and Fidelity in bitcoin ETFs means they will defend their business interests, providing bitcoin with new allies.
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% and often leads to a bull run followed by a bear market. Even if this cycle is breaking, the expectation of a price slide can become a self-fulfilling prophecy. However, the influx of institutional flows, including ETFs, sovereign wealth fund investments, and direct bitcoin purchases, is changing the market dynamics.
Back notes that investors like MicroStrategy are growing their capacity to buy bitcoin in various market conditions, and these recurring buyers, along with new institutional investors, will eventually overwhelm sellers. Addressing concerns about quantum computing's potential to break Bitcoin's cryptography, Back suggests that while institutions may pay attention to such risks, the impact on bitcoin's price is more related to information asymmetry and market uncertainty.
Institutions, being more systematic about risk, will consider even small tail risks, unlike retail investors who might view such concerns as distant and less relevant.