Thursday SEC-Approved Mailbag

Q: Should I sell the news?

Rumors of a spot bitcoin ETF are finally news — and both financial folk wisdom and crypto history suggests that means it may be time to sell. 

Bitcoin hit its previous all-time high just three weeks after futures-based ETFs were first listed in 2021, and bitcoin hit its all-time high of 2017 on the very day that bitcoin futures started trading on the CME.

The listing of spot bitcoin ETFs may have had similarly impeccable timing. 

If today turns out to have been this cycle’s high, ETF holders who bought at the open this morning will have gotten in at the very tippy top:

That is a cherry-picked data point (picked mostly to make myself feel better about being insufficiently enthusiastic about the ETF) and chances are this morning’s buyers won’t remain underwater for long.

Either way though, spot ETFs have launched with impeccable timing, and I think it’s worth noting that we have Gary Gensler to thank for that — he’s done crypto a great service by dragging the ETF debate out for years.

My unfalsifiable claim is that, in percentage terms, the ETF’s impact would have been the same no matter what price they were launched at. 

So Gensler has effectively amplified the price impact by letting the anticipation build for months on end and then launching them at $45,000 instead of $25,000. (Or $15,000. Or $500.)

He has not, however, done US investors any kind of service — which is unfortunate, as that happens to be his job.

Q: NOW is it all priced in?

In 25 years of following markets, I can't recall a more anticipated event than the bitcoin ETF, so I have to think it is.

Never in history, for example, has anyone outside of the SEC bothered to learn the different types of votes that can get an ETF approved or debated the meaning of new tickers appearing on the CBOE’s website.

We’re finally passed all that — with spot ETFs now a fact, the only thing left to anticipate is inflows, and my guess remains that it will be a disappointingly slow burn.

The bull case is that because it’s a winner-take-most market, ETF providers will aggressively promote their new product in a mad scramble for market share (by extolling the virtues of bitcoin and offering discounted fees).

I’m sure that will make some buyers.

But there are even higher hopes for the number of buyers that investment advisors (RIAs) at places like BlackRock will make, and I suspect that will take some time to develop.

Wall Street is not as predatory as it used to be — the churn-‘em-and-burn-‘em era of retail brokers depicted so colorfully in The Wolf of Wall Street is a thing of the distant past.

RIAs, for example, are no longer paid by transaction volume as they were at Stratton Oakmont, so I don’t expect they'll be hitting the phones in a mad frenzy on the first day of listing: “The key to making money in a situation like this is to position yourself NOW…”

We make those decisions for ourselves these days and it may be that we’ve already positioned ourselves. 

Q: Should I buy the ETF with the lowest price?

Not any more than you should buy the stocks with the lowest prices.

(You shouldn’t, in case that’s not clear.)

ETF prices are a function of the fund’s NAV (net asset value) divided by the number of shares outstanding.

In many cases, the number of shares is arranged so that the price of the ETF will be an easy-to-calculate fraction of the underlying.

The SPY ETF, for example, trades at roughly 1/10 the price of the S&P 500 Index that it tracks, which makes things nice and easy for everyone.

Bitcoin ETF providers have not done us that favor, however, so the ETFs trade at all different prices, none of which have any obvious relationship to the price of Bitcoin.

I suspect that’s because issuers are targeting a retail audience that they think will be attracted by lower prices — using odd divisors might let them be a little lower in price than their competitors. 

Or maybe because the odd prices will obscure the ETFs’ underperformance relative to spot bitcoin that inevitably comes from management fees and cash drag. 

Professional traders don’t care about either of those things, so ETFs like SPY trade with nice round divisors.

Regardless, the ETF market is hyper-efficient — they should all be trading extremely close to NAV at all times — so your only consideration in which one to buy will be liquidity and fees.

Q: Wen Vanguard ETF?

Never.

In fact, not only is Vanguard not listing their own ETF, they won’t let their customers buy anyone else’s either.

That caused some consternation on Crypto Twitter this morning — why won’t Vanguard let their boomers buy our bags??? 

But this is entirely on-brand for Vanguard, which has always been highly paternalistic — they won’t let you buy futures ETFs, penny stocks or international stocks either, because they think they’re bad for you.

And bitcoin in particular was never going to be their thing. Vanguard founder John Bogle advised us to “avoid bitcoin like the plague” from at least 2017.

But this is good branding for bitcoin, too.

Bitcoin being made available on Vanguard would be like Supreme making their $600 hoodies available at WalMart.

The Vanguard ban (along with others) may allow the OG crypto to maintain a least some vestige of its cypherpunk image. 

Bitcoin: The investment the establishment doesn’t want to buy!

When bitcoin is fully, unreservedly accepted by Wall Street, that will be the real sell-the-news event.

― Byron Gilliam

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This week, Dan Matuszewski of CMS Holdings joins the show for a discussion on trading crypto's next bull market. We deep dive into CMS's trading strategy, surviving previous bear markets, narrative trading in crypto & what to expect in 2024 post-Bitcoin ETF approval.

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