- The recent Bitcoin ETFs are a trading agreement between TradFi and DeFi, Raoul Pal opined.
- Pal expected significant foreign direct investment in crypto once the ETFs were approved.
Raoul Pal, CEO of Real Vision, believes that Bitcoin [BTC] has now stabilized its price as the crypto market is witnessing a long bull run. The inflow of institutional capital will further stabilize the market.
Pal made these comments while speak to Scott Melker recently on the “Wolf of All Streets” podcast. He made some crucial observations about Bitcoin, exchange-traded funds (ETFs), and institutional interest in crypto.
Pal speculated on the nature of Bitcoin as an idiosyncratic asset. He believed that the country has escaped the risk curve for the time being, with more capital injections. He added that Bitcoin’s previous lows were the bridges the community had to cross to get where it is today.
Bitcoin’s price reached $35,000 for the first time since May 2022. At the time of writing, the price stood at $34,302.
Source: BTC/USD, TradingView
As the leader of the crypto market, Bitcoin gave a much-needed boost to the altcoins that also made price corrections. The altcoin market cap has reached the $550-$570 billion range in the past week. At the time of writing, this amounted to $569.7 billion.
Source: Altcoin Market Cap, TradingView
TradFi is venturing into DeFi
Pal also shared his thoughts on the possibility of Bitcoin ETFs coming to market. He said he viewed these ETFs as a trade between traditional finance (TradFi) and decentralized finance (DeFi). He expected significant foreign direct investment (FDI) in the crypto economy.
However, the US Securities and Exchange Commission (SEC) has not yet given the green light to any of the spot Bitcoin ETFs. Two weeks ago, SEC Chairman Gary Gensler told Bloomberg that the agency was reviewing multiple spot ETF applications. But he made no further comment.
TradFi institutions such as Fidelity, BlackRock and Franklin Templeton really believe in crypto, Real Vision’s CEO noted. However, there are a number of issues surrounding the crypto industry that TradFi is concerned about.
First, the size of the crypto market is too small compared to that of the traditional market. This phenomenon often leads to a liquidity crisis.
Secondly, the regulation around crypto in the US has slowed the market. The regulator and the crypto companies are fighting the case in court.
Third, unknown people from faraway places like Hong Kong often control a large amount of cryptocurrency – even if it is illiquid.
Nevertheless, institutional activity around Bitcoin has recently increased again. According to IntoTheBlock, the number of transactions over $100,000 on Bitcoin reached its highest level in 2023, at almost 23,400 transactions.
Research head Lucas Outumuro attributed the activity to the recent spot Bitcoin ETF applications.
Institutional interest in Bitcoin is clearly increasing. Transactions over $100,000 have reached new highs in 2023. Recent spot ETF filings appear to be a driving force, as was the case following BlackRock’s ETF filing in June. pic.twitter.com/8dAgQ8Mfpo
— IntoTheBlock (@intotheblock) October 27, 2023
Rumors and regulations plague crypto
However, we should note that the recent rally first started with a misleading tweet about the SEC’s approval of BlackRock’s Bitcoin ETF on October 16.
Shortly thereafter, many leading commentators claimed on October 24 that the same ETF was listed on the Depository Trust & Clearing Corporation (DTCC). It later turned out that the website had listed the ticker in August itself.
The said ETF was then added to a clearinghouse eligibility file as a “standard” practice for potential funds.
It is essentially the repetition of such rumors in the crypto market that gives ammunition to the anti-crypto regulatory authorities. Regulators’ concerns are not unreasonable, given the magnitude of market swings such rumors often lead to.
As crypto comes under TradFi’s shadow, it will become more difficult for the sector to escape regulation.
So far, the US government has not shown any inclination to issue a range of crypto-specific regulations. Furthermore, the SEC asserted that existing securities laws are sufficient to regulate the industry.
It also counters accusations that the agency is pursuing a “regulation by enforcement” policy against the crypto industry.
The crypto companies, like Coinbase [COIN], have argued in court that the SEC violated the Major Questions Doctrine with its actions. Crypto is an important issue that Congress – not the SEC – should address, Coinbase argued.
Despite Coinbase’s multiple petitions, the SEC has paid scant attention to crypto regulations in its responses. Therefore, it is critical that we observe how crypto market size plays out in relation to traditional inflows and regulation.