BTC ETF Speculaiton
As covered in our mid-month investor update, in what proved to be false reporting by Cointelegraph, the announcement of BlackRock’s spot Bitcoin ETF approval saw a rapid flash rally which pushed Bitcoin to $30K. Despite a quick pullback once the headline was debunked, continued positive news flow and market factors saw Bitcoin swiftly reclaim the $30K level, closing the month at circa $35K.
Given the pipeline of ETF applications awaiting SEC approval including those from Blackrock and Fidelity, we believe investors are increasingly realising their portfolios are under-allocated to what the potential positive price impact and inflows that a BTC ETF will bring.
A report by Galaxy Digital (whom we should note have their own BTC ETF approval awaiting approval) - Sizing the Market for a Bitcoin ETF - forecasts inflows of $14Bn in the first year following spot ETF approvals, resulting in a ~75% appreciation in Bitcoin price from these flows alone.
Bloomberg ETF analysts noted that we have entered the SEC’s first window to approve all 12 spot Bitcoin ETFs, which could be approved by November 17. The below table outlines the impending deadlines, with the Bloomberg analysts ascribing a 90% chance of an ETF approval by January 10 next year.
Flight to Quality
It comes as no surprise that Gold rallied with the outbreak of fresh hostilities between Hamas and Israel, and corresponding fears of contagion in the wider Middle East pushed the USD price back up to over US$2,0000/oz.
BTC followed Gold, with BTC/Gold 30D correlations moving to their highest levels since the US banking failures earlier in the year.
Bitcoin continues to outpace the broader crypto market thanks to its unique characteristics, with Bitcoin dominance (BTC.D) finishing the month at 53%, its highest level since April 2021.
BlackRock CEO Larry Fink affirmed that the rally in October “… is about a flight to quality, with all the issues around the Israeli war now, global terrorism”, and noted, “we [BlackRock] are hearing from clients around the world about the need for crypto.”
Similarly, Jurrien Timmer, Director of Global Macro at Fidelity referred to Bitcoin “… as exponential gold" in a recent thread on X, and also discussed Bitcoin’s risk/reward vs many traditional assets, something we have discussed with many clients previously.
CME BTC Futures also saw its open interest rise to its highest level for the year and since August 2022, suggesting institutional participation in October’s price action.
Outside of Bitcoin performance, we believe we are witnessing the early beginnings of another Alt-token season. Whilst previous Alt-token rallies this year in specific assets/sectors within the crypto market could be attributed to the movement of capital already within the digital ecosystem, the broad increase across all assets in October and early November suggests fresh capital is entering the space. Supporting this, data from CoinShares shows that digital asset investment products saw their 6th straight week of net inflows, with over $760M invested over the period across a broad range of digital asset products, the largest run of inflows since the tail end of 2021.
In summary, we believe ETF approvals and a flight to quality narrative, along with next year's Bitcoin halving event, will act as positive catalysts for strong Bitcoin performance. This coincides with the increasing utilisation of blockchain networks for tokenisation – a use case that directly benefits underlying smart-contract platforms like Ethereum and their respective tokens thanks to increased usage. Alt-tokens benefit from new capital entering via new applications and use cases, as well as capital rotation from market blue chips, which sees the alt market perform strongly in the later stages of a crypto bull market.
We remain bullish on the asset class over the medium to long term and expect the endogenous factors listed above, as well as a potential Fed pivot and easing of monetary conditions to be conducive to price and adoption as we head into the new year. Please do reach out if you would like to discuss your current digital asset allocation.
We were pleased to see our flagship Digital Asset Fund top Preqin’s APAC cryptocurrency league table. This is a testament to the Fund’s systematic investment approach, led by the market-regime allocation methodology, which has outperformed peers this year amidst Bitcoin's dominant returns. The Fund is well positioned to perform strongly in both a Bitcoin-dominated market as well as later stages of bull markets that see Alt-tokens outperform.
Full performance updates and commentary on both Trovio funds will be issued to investors in the coming days, however, if you’d like to speak with the team about any of the above market views or discuss our strategies further, please reach out to the team via investor.relations@trovio.io.
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