Following the launch of spot Bitcoin (BTC) ETFs on the U.S. market, the question on the minds of hodlers is how experienced Wall Street traders and institutional investors will approach investing in the top digital asset, and whether they pose a threat to the HODL ethos that has become the rallying mantra of the community.
To get insights into how larger firms have approached trading BTC so far following the launch of the ETFs, and what they could do in the future, Kitco Crypto spoke with several experts in the field, who agreed that the arrival of institutions will have a significant impact on how Bitcoin trades.
"The BTC ETF operates similarly to traditional assets in the stock market, albeit with a unique twist: its value correlates directly with the performance of Bitcoin,” said Ronen Cojocaru, the CEO of 8081. “Unlike stocks such as AAPL or TSLA, which are backed by companies that undergo institutional review and performance analysis, Bitcoin lacks a company entity behind it.”
“Therefore, assessing Bitcoin's performance requires a different approach,” he said. “Bitcoin is still a relatively new asset, and its historical behavior is gradually becoming clearer. Understanding its price movements and drivers requires considering various influencing factors, which also affect how the BTC ETF behaves.”
“As the market learns to assess Bitcoin's dynamics, the increasing number of ETFs being released indicates growing demand for Bitcoin,” he added. “Furthermore, we observe a surge in applications across financial and payment systems adopting Bitcoin and other cryptocurrencies for a range of solutions. This trend contributes to the expanding utility and adoption of Bitcoin in various sectors.”
While Bitcoin is known for its FOMO-inducing rallies during bull markets, Cojocaru said that Wall Street is content with trading small percentages that capitalize on hype-driven moves to the upside and downside, and after 15 years of being on the sidelines, “they value the ability to trade at all.”
“Prior to the approval of the ETF, the only means to acquire this asset was through exchanges like Coinbase, Gemini, Kraken, OKX, or others, as well as digital wallets,” he noted. “The ETF has significantly broadened trading opportunities, extending access to both new users and institutions that can now market and offer this asset class.”
Cojocaru said that discussions with large institutions have shown that there is a “substantial demand among traditional investors to include digital assets in their portfolios, typically comprising around 2-5% of their overall portfolio allocation,” despite the fact that “cryptocurrencies are still considered high-risk investments due to their inherent volatility.”
“The approval of the ETF represents a pivotal moment, democratizing access to cryptocurrency trading and allowing a broader swath of investors to participate in this burgeoning asset class,” he said. “Moreover, it marks a step towards legitimizing cryptocurrencies in the eyes of traditional financial institutions and investors, fostering greater adoption and acceptance within the broader financial landscape.”
When asked how Bitcoin’s price could respond now that Wall Street has an easier route to access BTC, Cojocaru noted, “We have already witnessed a significant surge in BTC since the approval date in January, attributed to increased user adoption and the expanded marketing and offerings of all 11 ETFs.”
“Overall, the approval of ETFs has heightened awareness of the cryptocurrency market while instilling a degree of trust among financial institutions in accepting digital assets as a legitimate investment class,” he said. “Looking ahead, it's reasonable to anticipate the emergence of dominant ETFs over time, driven by increased investor participation and more favorable management fee structures. This trend is worth monitoring closely as it reflects the maturation and evolution of the cryptocurrency investment landscape."
As for whether it is more, less, or just as likely for BTC to suffer a 50-80% pullback following the peak of the current cycle, Cojocaru said, “It's challenging to predict future market movements, and I believe it's inherently unpredictable.”
“Markets shape themselves, and undoubtedly, increased adoption of BTC and other cryptocurrencies will likely reduce BTC's volatility,” he added. “This mirrors the dynamics of any stock market; as more people own a stock, its market movements tend to stabilize, especially when large institutions buy or sell shares. BTC's limited supply may indeed contribute to dramatic increases in its value over the years, but it's premature to make definitive statements, as market reactions remain uncertain.”
Cojocaru said this uncertainty “parallels the stock market, where only time can truly reveal the outcomes. While Bitcoin has exhibited remarkable growth and resilience since its inception, attempting to forecast its price over a decade-long timeframe remains speculative and uncertain. Moreover, the cryptocurrency landscape is in constant flux, with new technologies, competitors, and market dynamics continually emerging.”
"Several new technologies in fintech are emerging to support and manage volatility and pullbacks, should they occur,” he concluded. “This suggests that investors may have a more secure and trustworthy environment for automated trading, mitigating risks on their investments.”
Large institutions will bring greater stability
According to Kadan Stadelmann, CTO of Komodo, “The likelihood of a 50-80% pullback following the peak of a bull market could be influenced by several factors.”
“Institutional investors may bring more stability to the market, assuming they have a more long-term investment approach,” he said. “Additionally, the growing adoption of Bitcoin as a store of value and hedging instrument could provide stronger support levels during corrections. However, the inherent volatility of Bitcoin and the possibility of speculative behavior remain factors that could lead to significant pullbacks.”
“The adoption of spot BTC ETFs greatly enhances Bitcoin's legitimacy as an investable asset and facilitates further adoption by both retail and institutional investors,” Stadelmann added. “Additionally, ongoing developments in blockchain technology and the potential integration of Bitcoin into traditional financial infrastructure could contribute to its long-term growth.”
For Jag Kooner, Head of Derivatives at Bitfinex, it’s difficult to anticipate what larger firms will do, “even with smart money onchain tracking tools, because their funds are likely spread across several addresses,” and they “follow multiple models across multiple markets.”
“The most important thing is around spot demand from large funds, where momentum strategies and mean reversion are both used in tandem in these cases,” he said. “Large funds (apart from high-frequency traders and market makers) are likely already holding substantial positions based on momentum strategies based on the limited insight available via onchain trackers like Nansen.”
Kooner said the ETFs “have introduced ‘passive demand,’ which means demand is coming from investors that is largely price agnostic. They perceive Bitcoin as a store of value rather than a tradable volatile asset, which has been the case for several years before the introduction of the ETFs.”
“'Hodling' was a message given to the holders and early adopters of Bitcoin, enforcing the belief that all Bitcoin price movements were temporary and the limited supply of Bitcoin would only make the price go up in the long term hence, they shouldn't be scared of the short term price movements,” he noted. “This is evident in spot Bitcoin ETFs securing the largest ETF-related demand amongst all other categories of ETFs listed in the US since launch.”
“Large funds more often than not have a higher risk tolerance during drawdowns and much more patience in distributing their ‘investment inventory’ of BTC during rallies,” he said. “There have been no major outflows out of registered fund addresses as per CryptoQuant and Nansen data in the past month. (This excludes GBTC outflows which have also tempered now).”
Kooner said Bitfinex expects “demand from TradFi investors to be more ‘passive’ in nature” moving forward. “This is comparable to how wealth invested in Gold ETFs or stock indices-related funds see limited outflows and regular inflows through routine investment plans and diversification strategies, particularly in times of economic uncertainty (for example, the banking crisis which led to the collapse of Silicon Valley Bank in 2023, during which period the BTC price surged even as the stock market declined).”
As for a major drawdown for BTC, he said, “The fact we now have ETFs potentially means that any decline following the top of the current cycle could be less drastic than previous downturns.”
“We saw a similar stable trajectory in price after a huge increase following the launch of gold ETFs,” he noted. “However, from an investment perspective, it is advisable to assess the situation and various futures and onchain market metrics, once we get to the end of the cycle, to take a more definitive view.”
“Each cycle high has demonstrated diminishing returns for BTC and also lower percentage returns when contrasting cycle highs with previous cycle highs,” Kooner said. “However, the pre-halving rally that we are currently witnessing has already led us to within eight percent of the previous cycle high. The pre-halving rally usually leads BTC to within 35-30 percent down from the previous cycle high, which gives us reason to believe that the ETF approval catalyst has caused price to appreciate at a faster pace than expected.”
Based on these factors, Kooner said the analysis conducted by Bitfinex “forecasts a conservative price objective of $100,000-$120,000 to be achieved by Q4 2024, and the cycle peak to be achieved sometime in 2025 in terms of total crypto market capitalization. There are more aggressive targets of $180,000, which are not inconceivable in the current market cycle.”
Pro traders to take over
“The big players are pro traders,” said Ilya Stadnik, CEO of Zent. “That means they've got numerous strategies and meticulous planning. Some are choosing to speculate, while others will hold long-term. Risk appetites, strategies, and approaches vary.”
“However, they always plan ahead, that's a strict rule,” he stressed. “The majority will still make decisions based on price movements, but the new strategies for the new assets are the key.”
Stadnik said that initially, larger firms “will test the waters with smaller investments,” as “This asset type is new to everybody. Big players are aiming to establish a source of long-term returns rather than go along with hype and risk.”
“On one hand, the liquidity influx should help mitigate volatility and stabilize prices,” he said. “On the other hand, the tighter integration of crypto and traditional finance causes more ‘headaches’ for institutional traders trying to analyze future trends and behavior.”
He said theoretically, having more institutional players entering the market would decrease the velocity and magnitude of downside moves, making the price action “smoother. However, the industry is still so young and speculative that it is always fair to say ‘you never know’” how things will go.
As for where Bitcoin’s price is headed long-term, Stadnik said he doesn’t offer predictions but does have an opinion.
“As Warren Buffet mentioned a few times, the market is increasingly looking like a casino, and its participants are becoming ‘uncontrollable,’” he said. “While the industry is maturing, transitioning to the mass adoption through institutional liquidity inflows, regulation, and more, the years of stimulating speculative and reckless behaviors remain a fact.”
Market psychology of institutional investors
According to Nik Akinshin, Head of Financial Planning Analysis at neobank Keytom, “The psychology behind trading Bitcoin ETFs is similar to what we have in the broader financial market with price momentum playing a key role.”
He said their extensive trading experience has allowed “many firms to capitalize on the growing BTC price momentum to take stakes in the actively trading BTC ETFs. However, from the performance coverage thus far, corporations have been cautious with Bitcoin ETFs, allocating just a manageable portion of their portfolio to the new asset class.”
“This move is deemed an avenue to understand the terrain and current projections indicate that more robust adoption will be recorded soon,” he said. “Despite the hype, Bitcoin is still quite volatile and asset managers understand this trend.”
“Riding on this, the recommended portfolio allocation remains below 5%, and should the hype materialize as expected, the invested capital is poised to yield massive returns over time,” Akinshin said. “The goal is not to follow the hype but to make allocations that are sustainable based on the firm’s broader trading goals.”
“With the institutional embrace growing, Bitcoin’s price is bound to welcome more capital that will increase its market cap,” he added. “This, in turn, should help reduce sharp volatility and susceptibility to price surges. Overall, I anticipate Bitcoin making impressive but steady moves in the bull run, while potentially eliminating sharp, questionable spikes.”
Akinshin noted that while pullbacks are inevitable for any asset, in general, after a major price increase, “Bitcoin may suffer a correction sooner than expected,” as it has thus far outperformed expectations. “However, institutional money provides stability compared to retail traders who may fret when the market makes a slight U-Turn. While pullbacks will emerge, the current market structure may not trigger a 50-80% drop in the future.”
“With Bitcoin having already crossed the $60,000 price mark, it's likely we could see the price hit its previous all-time high (ATH) of over $69,000 before the upcoming halving event,” he concluded. “By year's end, I anticipate a peak of $80,000 for this leading cryptocurrency.”
