BTC Will Enter New Price Discovery Post ETFs, Says Bitwise

The early success of the Bitcoin ETFs has shattered records among similar products, sparking a continuous flow of funds into Bitcoin since mid-January. In an interview with Decrypt, Hougan said that Bitwise, which launched its BITB spot ETF alongside nine others on Jan. 10, expected there to be a lot of demand after years of hearing from clients expressing interest in this type of product.

Even still, Hougan said that sustained demand across the last month was a surprise, given the more gradual growth that ETFs typically experience after launching. With the expanded access they offer, he suggested that demand for Bitcoin will grow as more institutions move in to invest.

“Think of the ETF launch as Bitcoin’s IPO in the U.S. market,” Hougan told Decrypt. “It has just unleashed a huge wave of interest from traditional finance, and it has exceeded my expectations.”

Indeed, spot Bitcoin ETFs have been historically successful by any metric, but Bitwise has done especially well for itself. In the last day alone, Bitwise received about $126.5 million in inflows, its second largest intake since going online, and it recently crossed $1 billion in assets under management. This puts it in a tier that only includes BlackRock, Fidelity, and Ark Invest’s 21Shares so far.

Despite the ETFs now being available, not every financial institution is yet able to access them, said Hougan, and much of the trading has been conducted by retail investors. Firms like banks and wirehouses remain a way off from entering, but this is to be expected, Hougan explained, noting that every ETF goes through extensive due diligence by these institutions before they are offered to clients.

Like other assets, Bitcoin’s price is influenced by supply and demand, and this “second wave” of demand from institutions promises to drive up prices, according to analysts. In its own research, Bitwise predicted at the start of the year that Bitcoin will trade above $80,000 between inflows into spot ETFs, and the expected supply crunch that will follow the upcoming Bitcoin halving.

The halving refers to an event that occurs programmatically on the Bitcoin blockchain roughly every four years. Bitcoin rewards for miners, the individuals responsible for securing the Bitcoin network, will be cut in half following the halving, which is expected to occur on or around April 20. It’s meant to keep BTC inflation in check since it will slow down the amount of new Bitcoin entering the market.

“If we see this kind of sustained demand that is more than the net supply, it is going to be positive for prices,” said Hougan. “It’ll be this way until the long-term investors are satisfied with this and prepared to sell.”

To be sure, this is not a glide path to sky-high prices and there are caveats.

One of them remains risks around new regulations related to cryptocurrency that creates uncertainty, especially amid another contentious presidential election in the United States. Either outcome promises a change to the regulatory landscape.

Another variable is the existence of pools of unmoved Bitcoin outside of the current supply. About 70% of these pools—which can be held by governments or tied up in litigation related to insolvent firms such as FTX—have not been tapped, said Hougan, but their release could create supply pressures that weigh down prices.

After the ETFs launched, this was already observed with the outflows of Bitcoin held by Grayscale after it transitioned from a trust to an ETF. This dragged down prices for a time, but as these outflows appeared to slow, Bitcoin’s price took off again.

Regardless of these risks, Hougan contends that the current picture for Bitcoin adoption provided by the ETFs promises more returns with the opening it has created in the world of traditional finance.

“There’s been a ‘step-function’ change in the level of attention that Wall Street is now paying to Bitcoin, and I don’t think that genie will go back into the bottle,” said Hougan.