The push for more bitcoin EFT's continue, while spot ETFs in the US have proven a tough nut to crack, Brazil and Canada have already created one. The US does have a futures EFT that is cash-settled and investment firms are looking to divvy up other parts of the bitcoin ecosystem into an ETF so traditional funds and capital can get exposure to the asset class.
The latest proposed ETF by Valkyrie is a mining-based ETF and would invest at least 80% of its net assets in securities of companies. The mining companies that form part of the basket must “derive at least 50% of their revenue or profits” from bitcoin mining.
Investing in the asset that is bitcoin still comes with loads of complications such as custody and how you offset the volatility an issue I think will be tackled with mixed ETFs in the future.
Investing in bitcoin companies allows you to acquire a traditional asset that holds bitcoin so the success of bitcoin exposes the stock to the underlying success or failure of bitcoin, without holding bitcoin.
The Valkyrie Bitcoin Miners ETF resembles the Digital Asset Mining ETF proposed by asset manager VanEck that was pitched back in December 2021, but did not get much traction. I think Valkyrie is trying to go for a more conservative basket to try and get it through regulators and get it into the market.
The EFT knock-on effect
The idea behind an ETF means more liquidity can come in and purchase an equity stake in bitcoin miners. The more equity miners can sell the more fiat they can hold on their books. The more fiat they have on their books to meet obligations for operation, the less need to sell bitcoin to pay the bills.
The less pressure miners have to sell bitcoin the less supply comes on to the market. The lower the supply the higher the price, the higher the price the fewer bitcoin miners need to sell to profit from their operations.
If an ETF goes live and it starts to provide US miners with more capital, I can see ETFs for miners in Europe or Asia too as people compete for that exposure.
It can quickly become a powerful force for bitcoin price appreciation and if capitalizing mining provides a floor and lowers volatility, you should then see investors move on to other tranches in the bitcoin ecosystem, such as an ETF that invests in exchanges, where the same principles apply.
Bitcoin is building out a powerful ecosystem
If you look at the caliber of people and institutions getting into bitcoin you can see it's an asset class on its own and continues to break away from cryptocurrency.
I think that bitcoin is criminally oversold as people still see it as a risk asset, which is fine with me. These ETF's and positive news seems to have less effect on bitcoin than negative news and I think that plays into the hands of hodlers long term.
I've yet to see bitcoin mining stocks that outperform bitcoin meaning that acquiring the asset is still far more profitable and puts the retail trader at an advantage.
There is so much distraction in the market all trying to capture as much monetary premium as it can, trying to distract investors from gobbling up the scarcest digital asset in the world.
I also think the taproot upgrade, and the progress made with lightning and liquid have not been priced in, but both layers continue to gobble up bitcoin and are growing.
The next halving is 877 days away so that gives you another 3 years to enjoy stacking at this range before bitcoin breaks out again with the supply drying up. As these forces, I mentioned earlier keep growing and the supply tightens, its a recipe for an uptick.
Have your say
What do you good people of HIVE think?
So have at it my Jessies! If you don't have something to comment, "I am a Jessie."
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