The recent entry of Morgan Stanley into the US spot bitcoin ETF market has been seen by some as a pivotal moment that could mark the end of the current cryptocurrency bear market, thanks to the vast distribution capabilities of the Wall Street firm's $8 trillion wealth management network. However, Blockstream CEO Adam Back, an early contributor to the Bitcoin community and recently rumored to be the pseudonymous creator of bitcoin, Satoshi Nakamoto, which he denies, advises against haste. According to Back, while bitcoin ETFs are a crucial development for positive market signals, possibly even more significant than a pro-crypto US administration, their impact will take longer to materialize than most people expect.
"I think what people may have miscalculated is that institutional adoption is very slow," Back noted 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." Back emphasizes that investors do not make overnight decisions, and a build-up could take anywhere from a year to 18 months. "Some of that stuff is just starting to happen, and it will happen slowly.
So I think there's a tailwind," he added. As the co-founder of Blockstream, a company offering self-custody wallets, layer-2 network settlement, and asset issuance to retail and institutional clients, Back has a unique perspective on the market.
He is also the CEO and co-founder of BSTR, a bitcoin treasury company aiming to go public via a SPAC merger. Discussing the regulatory influence on the industry, Back pointed out that while the presidency of Donald Trump introduced a new legislative framework for crypto and even launched its own token shop, the now-established bitcoin ETFs have the power to transcend administrations.
The presence of major players like BlackRock and Morgan Stanley in the bitcoin ETF market will defend their business interests, thereby supporting the continuity of the 'open for business' framework for crypto, regardless of the administration. Back also touched upon the cyclical nature of bitcoin, driven by the quadrennial halving event, which often leads to a bull run followed by a bear market and recovery period. Even if this cycle is breaking, as some believe, the expectation of a price slide can become a self-fulfilling prophecy. However, with the entry of institutional flows, such as ETFs, sovereign wealth fund investments, and direct purchases of bitcoin, the market is seeing strength that could change this logic.
Back noted that companies like MicroStrategy, with their innovative financial products, are growing their ability to buy bitcoin in various market conditions, which, along with new institutional buyers, will eventually overwhelm sellers. Addressing concerns about quantum computing's potential impact on bitcoin's cryptography, Back suggested that while institutions might pay attention to such risks, the effect on the price of bitcoin is often exaggerated due to information asymmetry in the markets.
Institutions, being systematic about risk, will consider even small tail risks and seek answers, unlike retail investors who might view such risks as distant and less worrisome.