Why the Bitcoin ETF is important

Jan 10, 2024

Today is the day.

The Bitcoin ETF should be approved today, and the rumor is that it will be available to trade tomorrow.

But why is the Bitcoin ETF such a big deal?

Friction

The ETF reduces friction almost to 0. No need to ACH/wire money into Kraken, no need to KYC/AML, no need to understand how an orderbook works, no need to be proficient in key management or security.

Retirement accounts

While you could previously buy Bitcoin in self directed IRA, the process difficult and the fees expensive. Now tens of trillions of dollars can flow into the Bitcoin with a few button clicks.

Institutional Investors

The ETF legitimitizes Bitcoin, and allows institutions to hold it through their existing services. And financial advisors can now add Bitcoin to a portfolio with ease. Because Bitcoin isn’t correlated with many traditional assets and has high volatility, adding it to your portfolio (say 1%), will give you a better Sharpe Ratio. It’ll become a no brainer addition to your long term asset management strategy.

Derivatives and Hedging

When the ETF launches options trading will be enabled, anyone can hedge their existing Bitcoin position with calls/puts, or you can bet on price direction.

Solving the Unit Bias problem

As we’ve seen with Doge, Shiba, and other memecoins, a large supply number makes people feel more wealthy when they own XXXX vs 0.XXX. Humans think in whole numbers, not decimals.

The Bitcoin ETF share price can be any arbitrary value. For example: $1. Retail will pile in because they can own hundreds or thousands of “Bitcoin shares.” Most folks today don’t know you can buy part of Bitcoin. They think it’s “too expensive” at $45,000 vs looking at the market cap.

Closing Thought

When a tsumani of buying meets a fixed supply, the price is only going one direction.

It may not happen right away, it may not happen in 1-2 months, but I’m confident the next 6-18 months are going to be a wild ride.

HODL,

Dan Held