The arrival of Morgan Stanley to the US spot bitcoin The ETF party earlier this month was characterized by some observers as the catalyst that will end the current crypto bear market thanks to the massive distribution power of the Wall Street wirehouse’s $8 trillion advisory network.
Not so fast, said Blockstream CEO Adam Back, an early contributor to the Bitcoin community and recently tipped by the New York Times to be the cryptocurrency’s pseudonymous creator, Satoshi Nakamoto, a claim he denies.
The Bitcoin ETFs may be the most important development in recent times when it comes to positive market signals, more so than a pro-crypto US administration, Back said, but it’s taking longer than most realize. It won’t be immediate.
“I think what people may have miscalculated is that institutional adoption is very slow,” Back said in an interview with Coindesk. “So the ETFs were bought, but when BlackRock says they recommend 2% to 4% allocation in their general equity portfolio, the fund managers haven’t done that yet. And they will, but it’s slower than people expect.”
Investors don’t just pile in overnight, he said. A build can take a year, even 18 months.
“Some of those things are just starting to happen, and it’s going to happen slowly. So I think there’s a tailwind.”
Founded in 2014 by Back and other prominent Bitcoin developers, Blockstream offers retail and institutional clients self-custodial wallets, layer 2 network settlement and asset issuance. Back is also the CEO and co-founder of BSTR, a bitcoin tax company looking to go public via a SPAC merger with Cantor Equity Partners (CEPO).
The Trump effect
Although ETFs can trump the government to boost the industry, there is still a regulatory influence. Consider President Donald Trump’s crypto-friendly tone and compare it to the previous administration’s Security and Exchange Commission (SEC) and Chairman Gary Gensler’s attacks on the industry.
Instead, the US now has a presidency that not only introduced a new regulatory framework for crypto, but even launched its own token store.
“They have definitely improved the open-for-business environment in the US, which has indirectly encouraged other jurisdictions to do the same,” said Back, who lives in Malta. “So the UK FCA [Financial Conduct Authority] finally approved ETFs for retirement accounts and stuff. And I think maybe one or two other countries. They look at each other.”
While Donald Trump’s America may be open to crypto business, the now-established bitcoin TFs have the power to transcend administrations, whether Republican or Democrat, Back pointed out.
“One of the reasons to assume that ‘open for business’ will remain even if you get new administrations is that Black Rock and the other ETF providers will now be defending their business,” he said.
“They’re going to use a bank lobby to say they’re making a lot of money on the bitcoin ETF. We don’t want you to interfere with that. And so I think now bitcoin has new allies in Black Rock, Morgan Stanley and Fidelity and all these guys.”
Four-year cycle
Another price factor to consider is bitcoin’s cyclical nature, a historical pattern driven by the quadrennial halving event, which reduces the supply of new tokens by 50%. The reduction often leads to a relatively consistent bull run followed by a bear market/recovery period.
Even if the four-year cycle is breaking, as some commentators believe, there is still a reasonable possibility of a price drop happening simply because “people expected it to happen. So they sold and they made it happen,” Back said.
That logic is likely to change only when people see strength in the market, he said. It now comes in the form of institutional flows, such as ETFs, investments in sovereign and sovereign wealth funds, and investors buying bitcoin directly or shares in bitcoin treasury companies such as Strategy (MSTR), formerly known as MicroStrategy.
“They increase their ability to buy bitcoin under different market conditions,” Back said. “MicroStrategy, in particular, has had accelerated success with their Stretch form of fixed income product. So they’ve been able to use that to buy a lot of bitcoin, and it’s escalated even in the last few weeks. So the returning buyers plus new institutional and wealth management buyers will ultimately overwhelm the sellers.”
Strategy’s Stretch (STRC) is a perpetual preferred stock designed as a high-yield, bitcoin-backed income vehicle.
Quantum-tative
In addition to fielding questions about his identity, Back has also answered a whole series of claims about quantum computing hardware developing faster than expected and its power to break Bitcoin’s cryptography.
“People are trying to say it’s a factor,” Back said of quantum technology’s effect on the price of bitcoin. “But I think there’s a lot of information asymmetry in these markets, which means that things that you think are perfectly clear are confusing to some other people, and their uncertainty affects their decisions.”
That said, the latest round of quantum judgments may cause institutions to pay some attention, Back admitted.
“Institutions are more systematic about risk,” he said. “So if there’s a tail risk, even a small one, they want to know it’s covered. To retail investors, it sounds like something in the distant future that they might not be really worried about. But institutions will think a decade ahead and ask, ‘Is it a 1% risk? Is there an answer to that?’ They want to check things like that.”
