Fundstrat Tom Lee: Current Bitcoin Market too Small to Keep Up with ETF Market Demand
Cryptocurrency and especially Bitcoin investors have long been arguing in favor of an exchange-traded fund (ETF) from the regulators, but up until now, not a single application (the last rejection being that of Bitwise) has been approved by the United States Security and Exchange Commission (SEC). These investors believe that an ETF would lead to a large inflow of capital into the market and give it a much wider outreach.
But, looking at the rejections of the applications by the SEC it does not look like regulators believe its the right time for the cryptocurrency market to have its own fund.
Recently, Thomas Lee of Fundstrat Global Advisors came up with his reasoning behind why the crypto market does not need an ETF at present. Lee said that the cryptocurrency market is not big enough to handle the demand for ETF. He said the present cryptocurrency market needs to be 18 times its current value to handle the ETF demand. Lee said,
“If you’re involved in crypto, the SEC can look like an obstacle,”
“They’re establishing protections for individuals and right now it’s not convenient for the industry, but if the SEC is someone that people trust to protect them, that’s how you get the mainstream willing to get involved in crypto. Institutions aren’t going to touch crypto if they think the SEC isn’t doing a good job,”
As per a report in Bloomberg, Lee claimed that only when Bitcoin reaches a value of $150,000 to cope up with the daily demand of an ETF. Lee's comments came during the Blockshow conference in Singapore.
The SEC's Concern
Bitwise was the latest exchange whose application for a Bitcoin Exchange Traded Fund was pending before the SEC which like every other previous application was rejected as well. However SEC like before responded with an 112-page reply on why the application was rejected. SEC's main concern lies towards market manipulation which they believed would be a concern given the small liquidity of the market.
Many analysts claimed that the rejection was a clear sign that the crypto market is still years away from getting an ETF. Todd Rosenbluth, Director of Mutual & Exchange Traded Fund Research of CFRA explained that the ETF is not the issue, it's the value of the underlying asset. He said,
“It’s not the wrapper, it’s not the ETF product that’s the concern, it’s the underlying asset that the SEC is worried about from a fraud standpoint. They don’t want to pull off that band-aid too quickly.”
Lee was right to point out that Bitcoin needs to have much higher liquidity almost 18 times its present value and trade at a value of around $150,000 to attain the level of liquidity required to meet the demands for an ETF. However, looking at the present price which is hovering around the $9,000 mark and it's all-time high of near $20k it would be highly speculative to think about a $100,0000+ trading value.
However, crypto trader and analyst PlanB who has been in the limelight recently for his stock-to-flow chart believe looking at the scarcity factor, the $100,000 price point is achievable.
Stock-to-flow model has a lot of proponents, but not everybody is a fan. For a balanced view here are some of the most well known people against S2F:https://t.co/p2cLe7uGIDhttps://t.co/WlYSChAfVthttps://t.co/TzRLfxRZ9E
Tell me what you think. And .. did I miss anybody? pic.twitter.com/PthuHUvrlP
— PlanB (@100trillionUSD) October 29, 2019
Bitcoin is only behind gold in terms of stock-to-flow value and the chart predicts that the next bull run could start after the block reward halving scheduled in the first quarter of 2020.