Is new Bitcoin equilibrium price >$168,000?

It looks like the first Bitcoin ETF will finally be approved for trading in the US.  This product, offered by ProShares, will use CME futures instead of acquiring and holding actual bitcoin.  This is an important distinction, but from the perspective of the impact on the price of spot bitcoin, we do not think this will have a big effect.

There are some views that the run up in Bitcoin prices  BTC is already discounting this approval.  To an extent, this is probably true, since Bitcoin has surged to near all-time highs in the past few weeks. But in our view, the price of Bitcoin will continue to rise, well after actual approval of the ETF.  There are two reasons for this:

Reason #1

  • The 10 largest ETFs saw first year inflows of $14 billion
  • The most successful launch was QQQ (Nasdaq 100 ETF) launched in 2002
  • First year inflows to QQQ were $36 billion
  • We think Bitcoin demand will exceed the inflows for QQQ
  • Bitcoin  BITO 3.26%  could see first year inflows exceeding $50 billion

Reason #2

  • Crypto is about 1% of allocated liquid assets
  • The ETF  BITO 3.26%  will enable vastly more individuals to allocate to crypto
  • This will drive significant new inflows
  • By contrast, QQQ was already available via individuals buying stocks

Inflows into crypto = price gain –> will price rise to $168,000? Maybe

We did some quick back of the envelope math. 

  • daily demand for Bitcoin will rise by $50 million per day (ETF demand)
  • block reward is $10 million per day
  • the equilibrium price to clear this, based on analysis by our data science team (led by tireless Ken) = $168,000

This is above our $100,000 YE target price for Bitcoin.

2 reasons Bitcoin ETF approval drives further upside in Bitcoin and crypto prices.

ETF will enable more individuals to invest in Bitcoin –> 93 million households own equities, and ~40 million own bitcoin

We don’t know the exact number of households that own bitcoin in the US, but we know for sure that it is not as widely held as equities.  As the chart below shows, crypto is about 1% of liquid assets:

  • 93 million households own equities
  • average account balance is $200,000 for older Americans
  • perhaps 40 million households own crypto
  • average balance is well under $10,000

 So, you can see the math

  • more accounts hold Bitcoin via ETFs
  • each account allocates more money to Bitcoin

This will more than likely drive higher asset prices via network effects.  Granted, this is mitigated by the fact that this is a futures product.  And of course, the SEC could nix the approval.

2 reasons Bitcoin ETF approval drives further upside in Bitcoin and crypto prices.

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