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 have nothing to do with digital assets. This point of view is quite accurate because, at the moment, most investors in this asset class cannot invest in Bitcoin (BTC) and altcoins.
Public pension funds, retirement plans, fixed income, and most equity and multi-market mutual funds cannot invest in certain asset classes. These limits arise from the regulation of the class of funds, the fund’s own bylaws and the manager’s risk assessment.
Not all funds can invest in the Grayscale GBTC Trust
Unbeknownst to most, the mutual fund manager does not have complete control of the investment decision. The fund manager is an external 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 could find that a particular instrument poses significant risk and limit exposure or deny access to it. The trust, in this example, is the Bitcoin investment vehicle used by Grayscale, and involves a credit risk from the issuer.
Global asset managers typically have 30-60% exposure to fixed income, so they are highly unlikely to have exposure to cryptocurrencies. Amundi, the leading European investment firm with more than $ 2.1 trillion in assets under management, is a good example.
According BCG Group, the global asset industry has exceeded USD 100 trillion, and North America owns almost 50% of this figure. Sadly, these astronomical figures are causing analysts to incorrectly relate those numbers to the Bitcoin ETF instrument.
#Grayscale has partnered BNY Mellon, the world’s largest custodian bank with $ 41 Trillion in assets in custody. In Feb 2021, #BNYMellon announced they were entering the #Crypto space. Big move by Grayscale in the battle for a #Bitcoin ETF.@Grayscale @BNYMellon #etf #bitcoinetf pic.twitter.com/RfSO7UOKGS
– Thinking Crypto – YouTube Channel & Podcast (@ ThinkingCrypto1) July 13, 2021
Grayscale has partnered with BNY Mellon, the world’s largest custodian bank with $ 41 trillion in assets under custody. In February 2021, BNY Mellon announced that it was entering the cryptocurrency space. Grayscale’s big move in the battle for a Bitcoin ETF.
According to Reuters, more than half of all investment grade corporate bonds in the eurozone are now trading negatively. This includes the USD 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 USD 16.5 trillion, driven by more pessimistic outlook from investors and bond purchases by central banks.
Investors will gradually abandon fixed income strategies
There is reason to believe that investors who earn negative returns will eventually move to riskier assets, although a full shift to cryptocurrencies is unlikely. However, the most likely beneficiaries are unlevered multi-asset and alternative investments, as these instruments tend to carry less risk than equities and structured assets and high-yield bonds.
Consequently, an eventual approval of the Bitcoin ETF 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.
Although the ETF is exclusively reserved for a portion of equities and multiple asset classes, the new instrument does not need to raise $ 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 global listed commodity products is USD 263 billion. Considering that not all mutual funds are listed, it is reasonable to assume that the true figure exceeds $ 500 billion.
This means that a mere 1% allocation of this specific asset class equates to $ 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 get ahead of potential entry as soon as the approval is announced, regardless of the products raising just $ 5 billion in the first couple of months.
As governments and central banks continue to pump liquidity, buy bonds, and issue stimulus packages, there will be a gradual influx into riskier assets, increasing demand for an ETF.
The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade move involves risk, you should do your own research when making a decision.