The arrival of Morgan Stanley in the American bitcoin spot The ETF party earlier this month was characterized by some observers as the catalyst that will end the current crypto bear market thanks to the massive distribution power of Wall Street’s $8 trillion advisory network.
Not so fast, said Adam Back, CEO of Blockstream, an early contributor to the Bitcoin community and recently cited by the New York Times as the cryptocurrency’s pseudonymous creator, Satoshi Nakamoto, a claim he denies.
Bitcoin ETFs might be the most important development in recent times when it comes to positive market signals, more so than even a pro-crypto U.S. administration, Back said, but it takes longer than most people think. It won’t be immediate.
“I think what people may have miscalculated is that institutional adoption is very slow,” Back said in an interview with Coindesk. “So ETFs have been bought, but when BlackRock says it recommends a 2-4% allocation in its general equity portfolio, fund managers haven’t done it yet. And they will, but it’s slower than expected.”
Investors don’t arrive overnight, he said. Implementation could take a year, or even 18 months.
“Some of these things are just starting to happen, and it will happen slowly. So I think there’s a tailwind.”
Founded in 2014 by Back and other leading Bitcoin developers, Blockstream offers retail and institutional clients self-custodial wallets, Layer 2 network settlement, and asset issuance. Back is also CEO and co-founder of BSTR, a Bitcoin treasury company that is looking to go public via a SPAC merger with Cantor Equity Partners (CEPO).
The Trump effect
Even though ETFs may trump government in boosting the sector, there is still regulatory influence. Consider the crypto-friendly term used by President Donald Trump and compare it with the previous administration’s Security and Exchange Commission (SEC) and President Gary Gensler’s assault on the industry.
Instead, the United States now has a presidency that not only introduced a new legislative framework for crypto, but even launched its own token store.
“They definitely improved the open-for-business framework in the United States, which indirectly encouraged other countries to do the same,” said Back, who lives in Malta. “So the UK FCA [Financial Conduct Authority] finally approved ETFs for retirement and other accounts. And I think maybe one or two other countries. They look at each other.
While Donald Trump’s America may be open to crypto activity, now-established Bitcoin ETFs have the power to transcend administrations, whether Republican or Democratic, Back pointed out.
“One of the reasons there is an assumption that open for business will continue, even with new administrations, is that Black Rock and the other ETF providers will now defend their businesses,” he said.
“They’re going to use a bank lobby to say they’re making a lot of money with the Bitcoin ETF. We don’t want you to interfere with that. And so I think now Bitcoin has new allies in Black Rock and Morgan Stanley and Fidelity and all these guys.”
Four-year cycle
Another pricing factor to consider is the cyclical nature of bitcoin, a historical trend driven by the quadrennial halving event, which reduces the supply of new tokens by 50%. The reduction often leads to a relatively constant uptrend followed by a bear market/rally period.
Even if the four-year cycle is broken, as some commentators believe, there is still a reasonable possibility that a price decline could occur simply because “people expected it to happen. So they sold and they made it happen,” Back said.
That logic will likely only change when people see the strength of the market, he said. This now comes in the form of institutional flows, such as ETFs, investments in sovereign and sovereign wealth funds, and investors purchasing Bitcoin directly or shares of Bitcoin treasury companies such as Strategy (MSTR), formerly called MicroStrategy.
“They are increasing their ability to buy bitcoin in different market conditions,” Back said. “MicroStrategy, in particular, has seen accelerated success with their Stretch fixed income product. So they’ve been able to use that to buy a lot of bitcoin, and that’s been ramping up even over the last few weeks. So these repeat buyers as well as new institutional and wealth management buyers will eventually overwhelm the sellers.”
Strategy’s Stretch (STRC) is a perpetual preferred stock designed as a high-yield income instrument backed by bitcoin.
Quantum-tative
In addition to responding to inquiries about his identity, Back also responded to a series of claims regarding quantum computing hardware advancing faster than expected and its ability to break Bitcoin’s cryptography.
“People try to say it’s a factor,” Back said of quantum technology’s effect on the price of Bitcoin. “But I think there is a lot of information asymmetry in these markets, which means that things that you think are perfectly clear are confusing to some people and their uncertainty impacts their decisions.”
That said, the recent wave of quantum catastrophe judgments might prompt institutions to pay some attention, Back conceded.
“Institutions are more systematic about risk,” he said. “So if there’s even a small tail risk, they want to know it’s covered. For retail investors, it seems like something in the distant future that they might not really worry about. But institutions will think a decade ahead and ask, ‘Is this a 1% risk?’ Is there an answer to that?” They’ll check stuff like that.
