The recent entry of Morgan Stanley into the US spot bitcoin ETF market has sparked optimism among some observers, who believe it could mark the end of the current cryptocurrency bear market, thanks to the vast distribution network of the company's $8 trillion wealth management division. However, Blockstream CEO Adam Back cautions that the process will take longer than anticipated. Back, a renowned cryptographer and early contributor to the Bitcoin community, notes that while bitcoin ETFs are a significant development, institutional adoption is a slow process. He explains that even when major institutions like BlackRock recommend allocating 2% to 4% of their portfolio to bitcoin, it takes time for fund managers to implement these changes.
According to Back, this build-up can take up to a year or 18 months, and it is this slow and steady approach that will ultimately drive growth in the market. Founded in 2014, Blockstream offers self-custody wallets, layer-2 network settlement, and asset issuance to both retail and institutional clients. Back also serves as the CEO and co-founder of BSTR, a bitcoin treasury company planning to go public via a SPAC merger. The current US administration's crypto-friendly stance has also contributed to the growth of the industry, with the introduction of a new legislative framework for crypto and the launch of a token shop.
This shift in regulatory approach has encouraged other jurisdictions to follow suit, with the UK's Financial Conduct Authority (FCA) approving ETFs for retirement accounts. Back believes that the establishment of bitcoin ETFs has given the industry a degree of stability, regardless of the political administration in power.
The involvement of major institutions like BlackRock, Morgan Stanley, and Fidelity will help defend the industry's interests and ensure its continued growth. 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%. While some commentators believe this cycle may be breaking, Back suggests that the price may still be affected by expectations of a bear market.
However, with the influx of institutional investment, the market is likely to see a shift in sentiment, driven by the growing ability of investors to buy bitcoin in different market conditions. Back also addresses concerns about the impact of quantum computing on Bitcoin's cryptography, stating that while it may be a factor, it is not a significant concern at present.
Nevertheless, institutions are taking a systematic approach to risk management, considering even small tail risks, and seeking to mitigate them.