The recent participation of Morgan Stanley in the US spot bitcoin ETF market has been viewed by some as a catalyst to end the current cryptocurrency bear market, leveraging the vast distribution network of the company's $8 trillion wealth management division. However, Adam Back, CEO of Blockstream and an early contributor to the Bitcoin community, cautions that the process will be slower than expected. Back notes that while bitcoin ETFs are a significant positive market signal, even more so than a pro-crypto US administration, institutional adoption takes time. "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, investors do not immediately invest; instead, the build-up can take up to a year or 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. Founded in 2014, Blockstream offers 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 has improved under the current US presidency, which has introduced a new legislative framework for crypto and launched its own token shop. This shift has encouraged other jurisdictions to follow suit, with the UK's FCA approving ETFs for retirement accounts.
While the US presidency may change, the established bitcoin ETFs have the power to transcend administrations, with providers like BlackRock defending their business interests. Another factor influencing bitcoin's price is its cyclical nature, driven by the quadrennial halving event.
Even if this cycle is breaking, the possibility of a price slide remains due to market expectations. However, institutional flows, such as ETFs and sovereign investments, are changing the landscape, with buyers like MicroStrategy growing their ability to purchase bitcoin in different market conditions. Eventually, these buyers will overwhelm the sellers, according to Back. Additionally, Back addressed concerns about quantum-computing hardware potentially breaking Bitcoin's cryptography, stating that while it may be a factor, institutions are more systematic about risk and will consider even small tail risks.
For retail investors, quantum technology may seem like a distant concern, but institutions will think ahead and assess potential risks.