Michael Saylor’s MicroStrategy Keeps Bitcoin Buoyant as the SEC Keeps Springing Hurdles in Approving a Spot ETF

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The SEC appears adamant about creating as many twists and turns as possible in the long road to the launch of some of the first spot Bitcoin ETFs in the US. Even so, Michael Saylor’s MicroStrategy has again burnished its credentials as an unswerving Bitcoin proponent, having acquired over half a billion dollars worth of BTC over the recent price correction, thereby staving off a steeper decline in the price of the world’s preeminent cryptocurrency.

As we noted in a recent post, Senator Warren’s Digital Asset Anti-Money Laundering Act of 2023 played an important role in spurring Bitcoin’s recent price weakness. Should the bill turn into a law, it would virtually ban Bitcoin and other cryptocurrencies in the US courtesy of the stringent KYC and anti-money laundering liabilities and responsibilities that would then be imposed on Bitcoin miners, validators, and non-custodial wallets. The bill has 21 co-sponsors, including two Republican Senators, boosting its prospects of turning into a formal piece of legislation. This has predictably hammered the price pf Bitcoin in recent days.

Of course, a major portion of Bitcoin’s recent price weakness is due to the SEC’s chosen route of creating as many legally tenable hurdles as possible in the launch of the first spot Bitcoin ETFs in the US. Despite the fact that futures-based ETFs currently operate via an in-kind redemption model, where redemption requests from customers can be satisfied by delivering eligible securities and assets in place of cash, the SEC is insisting that the operators of spot Bitcoin ETFs adopt a cash redemption model, where customer redemption requests will only be satisfied via cash settlement and not via transfers of actual Bitcoin holdings.

Do note that most analysts expect the SEC to formally approve some of the first spot Bitcoin ETFs in January 2024. Such ETFs make it extremely convenient for investors to acquire exposure to Bitcoin without the various pitfalls associated with futures-based ETFs, which include roll-over losses in contracts that are usually in contango – a typical situation where contracts for the months ahead are usually priced at a premium to the spot price, leading to progressively expensive roll-overs as the front-month contract expires and the next one takes its place. Over time, should contango persist, this mechanism leads to higher costs and ETF underperformance relative to the spot price. Due to this phenomenon, the futures-based Bitcoin investment avenues are not conducive to large-scale institutional adoption.

This imminent launch of spot Bitcoin ETFs in the US has spurred a veritable plethora of bullish calls from analysts who view these investment vehicles as important conduits for channeling an increasing flow of investment in the Bitcoin ecosystem. For instance, AllianceBernstein now expects Bitcoin to hit $150,000 in 2025, courtesy of the launch of these new investment vehicles and the upcoming halving event in April 2024, when the reward for mining the world’s preeminent cryptocurrency will again be cut in half in what is a regular 4-year cycle.

Bitwise Investment’s Ryan Rasmussen, however, expects a relatively muted impact from these developments, predicting a price level of around $80,000 for Bitcoin in 2024. Rasmussen also believes that the spot Bitcoin ETFs could easily capture 1 percent ($72 billion) of the $7.2 trillion US ETF market within 5 years.

Meanwhile, Michael Saylor’s MicroStrategy revealed today that it recently bought an additional 14,620 BTC for around $615 million, thus playing an important role in staving off a deeper correction in the price of the world’s preeminent cryptocurrency.

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