Some financial experts believe that the price of cryptocurrencies is driven solely by investor speculation, and in recent years naysayers have suggested that fixed-income instruments such as treasury bills are unrelated to digital assets. This viewpoint is quite accurate because, at the moment, most asset class investors are unable to invest in Bitcoin (BTC) and altcoins.
Public pension funds, retirement plans, fixed income, and most non-leveraged equity and multi-market mutual funds can only invest in certain asset classes. These limits arise from the regulation of the class of fund, the fund’s own bylaws and the manager’s risk assessment.
Not all funds can invest in Grayscale’s GBTC Trust
Unbeknownst to most, the mutual fund manager is not in complete control of the investment decision. The fund manager is a third party company that acts as an intermediary between the fund manager and the investors to verify and distribute the assets linked to the investments.
therefore, the The fund manager may find that a particular instrument presents significant risk. and limit exposure or deny access to it. The trust fund, in this example, is the investment vehicle used by Grayscale Bitcoin (GBTC) and involves a credit risk from the issuer.
Global asset managers will generally have a fixed income exposure of 30% to 60%, so it is highly unlikely that they will have exposure to cryptocurrencies. Amundi, Europe’s leading investment firm with more than $ 2.1 trillion in assets under management, is a good example.
According to BCG Group, the global asset industry has exceeded $ 100 trillion, and North America has nearly 50% of this figure. Unfortunately, these astronomical figures cause analysts to incorrectly relate those numbers to the Bitcoin ETF instrument.
#Grayscale has partnered with BNY Mellon, the world’s largest custodian bank with $ 41 trillion in assets in custody. In February 2021, #BNYMellon announced that they were entering the #Crypto space. Great grayscale move in the battle for a #Bitcoin ETF.@Grayscale @BNYMellon #etf #bitcoinetf pic.twitter.com/RfSO7UOKGS
– Thinking Crypto – YouTube channel and podcast (@ ThinkingCrypto1) July 13, 2021
According to Reuters, more than half of all investment grade corporate bonds in the eurozone now trade negative returns. This includes $ 7.7 trillion of public debt and represents 70.8% of the total.
Financial Times has reported that the value of negative yielding global debt has exceeded $ 16.5 billion, driven by the more pessimistic outlook from investors and bond purchases by central banks.
Investors will gradually exit fixed income strategies
There is reason to believe that investors making negative returns will eventually move to riskier assets, although a full shift to cryptocurrencies is unlikely. However, the most likely beneficiaries are multiple assets without leverage and alternative investments, as these instruments generally carry less risk than stocks and high-yield structured assets and bonds.
Consequently, an eventual Bitcoin ETF approval by the US Securities and Exchange Commission (SEC) will open the doors to a wide range of funds that are currently excluded from exposure to cryptocurrencies.
Even if the ETF is exclusively reserved for a portion of the stocks and multiple asset classes, the new instrument does not need to capture $ 500 billion to drive Bitcoin’s market capitalization above $ 2 trillion. Less than 2.5 million coins are deposited on exchanges, which equates to $ 125 billion available for trading.
Commodity funds are the best candidate
According to iShares, the value of listed commodities is $ 263 billion. Considering that not all mutual funds are listed, it is reasonable to assume that the actual number exceeds $ 500 billion.
This means that a mere 1% allocation of this specific asset class equals $ 5 billion, and such an investment would surely be enough to propel the price of Bitcoin above its all-time high of $ 65,000.
If a BTC ETF is approved, traders will anticipate potential entry as soon as the approval is announced, regardless of whether the products capture just $ 5 billion in the first few months.
As governments and central banks continue to pump liquidity, buy bonds and issue stimulus packages, there will be a gradual entry into riskier assets, increasing demand for ETFs.
The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph. Every investment and trade movement involves risk. You should do your own research when making a decision.