Hi. Ive learned a lot from the good folks of Bitcoin Reddit over the years, and I deeply thank you. This is a collection of insights from many of you as well as my own input on the subject. Im not an expert, but heres my attempt at explained ETF’s, what it means for Bitcoin, why weve seen a drop in price since the launch and why theres still growing optimism. I know its long, but I hope this will be interesting read.
Etf's are IOU's, they are paper trades backed by Blackrock (and others). ETF's allow institutional investors a way of investing in a landscape they understand, rather than educate themselves in how to buy Bitcoin first hand & self custody.
Also many funds and corporations have government rules that do not allow them to invest in Bitcoin directly. They can however invest and hold ETFs.
Blackrock sells the ETF’s (as an IOU) to institutional investors, which they will need to back on 1:1 basis. Meanwhile Blackrock will get rich on the fees for offering them that window AND the fees will help them purchase even more BTC at OTC prices, from OTC sellers.
But when the liquidity pools of OTC sellers become unavailable to trade due to buyers like Blackrock, they will have to turn to Exchanges. Exchanges in turn will HAVE TO buy on the open market eventually if they run out and thus it will start affecting BTC price sometime in the future. We don’t know when.
“Over the counter” OTC’s EXPLAINED:
As a fund manager for Whales or Institutions, its not as simple as buying Bitcoin on Coinbase or another exchange. With this large amount of money involved, you have to be careful how you enter the market. You can't just sell a massive amount of BTC, because it would tank the price AND you can't just buy a massive amount, because the price would rocket up. You always wouldn’t be able to get value from the trades, because the margins would get bigger. So you have to find another way.
Rather than go on the open market, OTC allows buyers and sellers to agree in private a price that works for both of them. Hence OTC for large transactions are not floated on exchanges or open markets and don’t directly influence the price.
However OTC sellers only have so much available to offer… and larger entities like blackrock will be wanting to buy to fulfil their ETF 1:1 BTC pledges & contracts .
These OTC sellers typically maintain a pool of Bitcoin that they use to facilitate trades. OTC sellers might have limitations on the volume of BTC they can offer at any one point in time and so availability may run out. When an OTC seller runs out of Bitcoin and needs to acquire more there are three paths: Buy BTC directly from Miners / Borrowing some from the other sellers / Buy it from an exchange privately
The Exchange maintains a reserve for such a purpose, and they in turn will need to buy more from the open market to fulfil the OTC trade with the seller. These reserves are maintained by users who deposit funds into their platform / Trading fees / Initial coin offerings (ICOs) associated fees. This adds to their reserve funds, which can be used for OTC sales, but they will have to buy from the open market at some point!
Exchanges are the middlemen, but even their deep pockets need resupplying. To replenish their Bitcoin reserves, they ultimately rely on the open market. But they're not passive buyers. They use a toolbox of tactics, including buying directly from OTC players, taking advantage of price discrepancies (Arbitrage), or placing large market orders to snag the necessary Bitcoin themselves. It's a constant dance between satisfying OTC demand and keeping their own reserves healthy.
Why didn’t BTC move on the launch?
Big financial institutions who manage massive portfolios cant just add ETF's to their clients portfolios by chance. It usually takes around 90 days for them to process a new stock. So money pouring into ETF's will likely start to realise around mid april.
Why the recent drop?:
First off, this type of volatility is NORMAL for Bitcoin. So try to ignore the noise if you are new to the Bitcoin space. Try to think of as an investment of 4yrs or more. Those that panic sell at this point are feeding the sharks!
With that being said, the massive run up to ETF getting approved, some whales were buying BTC aggressively and thus created the recent pump a few weeks leading up to announcement and the subsequent momentum involved. They were doing this with intent of selling the ETF's “demand” later on. Short selling the on momentum caused and making profits from the recent drop, back down to support levels.
This is compounded by the main cause : : : which is investors exiting GBTC, both to lock in profits and to shift to cheaper ETFs, creating massive selling pressure. But this transfer of wealth will come to an end soon, and new money will start to flow in front other clients.
So why the optimism?:
Heres the sequence of events were ETF’s are concerned: Blackrock wants to be buyer to fulfil their 1:1 ETF’s pledges >>>putting pressure on the OTC sellers >>>OTC sellers could borrow from other OTC sellers as a backup BTC or they might grab a private loan from Whales to discreetly buy some BTC from the open market, all depending on speed, but its not a guarantee >>>Therefore OTC sellers will need to buy it from exchanges if their availability runs out. >>>Exchanges in turn will need to buy Bitcoin from the open market at some point to replenish their reserves to maintain their liquidity pools for these OTC’s sales. >>>It all ends up at the need to buy from the open market, which is what we are interacting with.
While an upward trend is possible, it could take days, weeks, or even longer to emerge onto the open market. Instead of focusing on a “bought bitcoin, wheres lambo?”, it's more helpful to consider all these factors as part of powerful sustained uptrend spanning years to come.
With powerful brokers like Blackrock, they will want to advertise their ETF’s to their clients, so FUD from the media will start to decrease as they pay off media companies to shill for them. Bitcoin then becomes the next greatest thing. We are already starting to see adverts on subways and tv adverts! Show hosts and news anchors next! (just so long as Cramer doesnt say anything positive lol.)
Inadvertently this media attention will cause increased demand for Bitcoin, as more Whales find out about it, discover different ways of buying Bitcoin on the open markets (exchanges) and learn about self custody. Meaning, "Why buy these shitty ETF IOU’s, when I could be buying Bitcoin in such a way that it cannot be confiscate from me? Get me them Bitcoins!".
Also lets not forget mass adoption by individuals. Rather than keeping your savings in a shitty bank whereby your purchasing power and value decreases over the years due to inflation and printing fiat. As people (myself included) find it hard to pay extortionate energy bills & cost of living, they will want to find ways of protecting their savings. On this path, people inevitably discover about Bitcoin, that its hedge against inflation and is pure storage of their value, has other utilities etc. Self discovery, together more Youtube videos, Social Media Influencers & Gentle conversations with friends, this all drives mass adoption on the private investor level.
Bitcoin is a journey, the more you find out about it, the more valuable it gets and we havent even touched on its utilities.
Remember we are still early on this & Resistance is Futile!
Enjoy the Ride & Hodl on!
This is the way…
*Respect to fellow Bitcoiners! who weather the storm. submitted by /u/AtensLight