Bitcoin ETF Deep Dive (What is it and is there an opportunity for stocks?)
Date: 6/21/2023
Deep Dive Counter: 6
Good Morning everyone! I hope your stocks are green, and your options are in the money. Thank you for all the support on the previous Deep Dives. Your support keeps me motivated to continue making them :). Let's do quick recap.
We are currently 5/5 in from our Deep Dives! C3.AI, Rivian, SoundHound, Tesla, and Palantir all saw amazing gains after our initial analysis on each of the companies and what Nuralink means for Tesla. Hopefully you have made some great returns.
What's this Deep Dive about?
Before I begin, today's Deep Dive will be a little different. Instead of looking at a specific company, we are going to talk about the current movement of Bitcoin and what the proposed Bitcoin ETF will mean for different companies. Yes, it is what you think. We're going to look at a few different companies! Not all of us have $29,000 USD to go around and buy up Bitcoin. So how can we prepare for the possible Bitcoin ETF and how can we make some money if it goes through? Lets find that out.
(For reference, I will be referring to Bitcoin as Bitcoin or BTC)
Part 1: History
I. The Peer-To-Peer Electronic Cash System. Published in 2008, the article outlined the design of a way to theoretically make money through an operating structure that became known as Bitcoin. You can read the whole PDF here: bitcoin.org/bit...
II. Bitcoin is a digital currency that most of us have come to know. Named "The King of Crypto", Bitcoin was originally Launched in 2009. Not much is known about Nakomoto, however what is known is incredible success Bitcoin has seen since then.
III. In 2010, Bitcoin never reached the once thought mythical price of $1. Topping out at $0.39, the legitimacy of this sort of currency was unknown. At the time of launch, the world was still recovering from the crash of 2008 and 2009, and no one had the money or faith, let alone knowledge of what Bitcoin really was, to invest in one persons theory. Not to mention almost nothing was known about Nakomoto.
IV. Regardless, on Februrary 9th in 2011, BTC hit the $1 mark for the first time ever. However, it did not take much longer for BTC to gain some traction. Bitcoin eventually hit $10, then $20 and even stretching to around $30 later that year. Although BTC was gaining momentum, the crypto currency closed under $5 on year. This was still bullish as we know today how tough it is for a cryptocurrency that started out at just a few cents to reach $1 and stay there.
V. Even though the price is low, Bitcoin would never see the $5 mark ever again. In 2013, BTC began trading for around $13, only to balloon to over $1000 in October. This momentum pushed the BTC market cap to $1 Billion for the first time and attracted a lot of attention from investors. In Februrary of that year, Coinbase reported selling over $1 Million of bitcoin at an average price of $22.
(Ever heard the saying "I wish I bought Bitcoin back then at..." or "I was going to buy Bitcoin for.... in..... but I didn't" maybe even "I wish I held my bitcoin I bought for...." well, some investors saw what others didn't back then and did not sell.)
VI. 2014 was a tough year for BTC. Dropping from over $900 to mid $300, BTC entered a bear market on the year and many investors sold, but again, those who took the opportunity averaged down and held their coins.
VII. For their patients, those investors were rewarded, From 2015-2017, Bitcoin went from just over $300 to a peak of nearly $20,000. The $1000 price would never be seen again for Bitcoin.
VIII. From 2018-2020, Bitcoin experienced large amounts of volatility. Falling from $20,000 to $3000 in 2018, Bitcoin opened in 2019 at around $4000. With the COVID-19 Global Pandemic in full swing, Investors were selling their BTC in order to afford the essentials. Some of those investors, saw the opportunity and recognized the trend with the popular crypto currency. Falling over $17,000 is too much, and BTC should be in the market to raise. And what a good call that was!
IX. As Jerome Powell and the boys at the Federal Reserve kicked on the money printer, Bitcoin flew to a record high of $68,000 in November of 2021.
X. As of writing, Bitcoin is at $28,907 and rising on some new anticipated News: The Bitcoin ETF.
How does Bitcoin Work?
There are a few things to know about how Bitcoin actually works.
I. First you have your wallet. The wallet is comprised of a unique hash value. That way one can distinguish ones wallet from another one. This way, you know who you are sending money to and receiving money from.
II. Block Chain. A block chain is a shared public ledger which the entire Bitcoin Network relies on. All transactions made from wallet to wallet are included on the block chain and allow for verfiication from the sender. These blocks are secured with advanced cryptography in order to protect your coins.
III. Private Keys. Bitcoin mentions that a transaction is a "transfer of value between Bitcoin wallets that gets includes in the block chain". Wallets will keep a secret piece of data called a private key, or seed, which is used to sign each transaction which provides mathematical proof they have com from the owner of the wallet. These private keys also stop the transaction from being altered by anyone else.
If you want more in-depth of how bitcoin works, as well as Bitcoin Mining, the security of each transaction and overall design, you can learn more here:
Part 2: Today
What's the point?
Okay, we now know the history of bitcoin and how it works on the fundamtnal level. As mentioned, Bitcoin is trading around $29,000. Not all of us have $29,000, or even $5000 to put into Bitcoin. So how can we make money off of a play that is out of the budget?
I wondered this myself, until I realized the impact the BTC spot ETF might have for other companies. In this article, I am going to mention some tickers I think might be a good hold in order to prepare for the Bitcoin ETF.
But first, let's go over what we know right now.
It should be mentioned that Bitcoin is decentralized asset. This means that not one single entity can control how Bitcoin works. This also means that the regulators are those contributing towards the block chain. To some, Bitcoin is seen as a Bank Hedge. With the banking crisis that began earlier this year, many people lost faith in the traditional system. Bitcoin rose on this news and is important to understand.
The SEC.
I. To this date, many ETF issuers have tried to launch spot bitcoin ETFs, but none have succeeded. This is because of the government. The SEC is uncomfortable with the unregulated nature of the crypto space. Furthermore, the Chair of the SEC, Gary Gensler, is personally not a supporter of Bitcoin fundamentally.
II. Recently, BlackRock filed an ETF with the SEC called iShares Bitcoin Trust in another attempt to represent the crypto currency. Whether or not this will go through has yet to be determined. However, if it does I think there are some plays that might get attention leading up to the decision, and if the ETF is approved.
III. However, even though there is no current spot ETF, there are ETFs in Canada! The largest known as Purpose Bitcoin ETF. In addition, the SEC has approved of bitcoin futures ETFs, the most known being ProShares Bitcoin Strategy ETF with ~$1 Billion in assets.
IV. The SEC needs transparency. Graeme Moore, head of Tokenization at Polymesh Association, is quoted as saying "The SEC is very concerned with market manipulation related to Bitcoin prices, and has cited this in almost, if not all, previous rejections" (Moore). Basically, the SEC wants regulation. By which, Blackrock is proposing a promise of "surveillence-sharing agreement" between exchanges. This will allow for the sharing of information about market trading activity, clearing activity and customer identification in attempt to narrow down any possibility of market manipulation. This agreement, initiated by the Nasdaq, is called the Spot BTC SSA. Nasdaq hopes to reassure the SEC of limited market manipulation, but also puts Coinbase in a good position to demonstrate they can be trusted to prevent "Fraudulent and manipulative acts and practices" (Moore). A compelling proposal, but whether or not it holds water will be determined by the SEC's battle with Coinbase.
TLDR: So, Blackrock, one of the most notable funds, wants to establish a Bitcoin spot ETF. However, the SEC does not like cryptocurrency and to this day no company has been able to achieve the SEC's approval of such an instrument. However, Canada already has Bitcoin ETFs and the SEC already approved of Bitcoin Futures. Right now, I am leaning slightly bearish on the possibility of the ETF being created, but overall neutral. I think there is going to have to be more support for the creation from other funds and individuals as well as more transparency from Blackrock and Coinbase.
Companies
I. Coinbase. It should not be a surprise that Coinbase will benefit off of a Bitcoin ETF. Coinbase is the most prominent company representing the transactions of Crypto Currency. As of today, Coinbase and the SEC are fighting one another over digital assets and may see an increased amount of volitality on the day. Should Coinbase and the SEC discontinue talks around digital assets, I think the company might be a good hold. As I am going over my writing, I can't see the ETF being created unless the SEC is no longer pursuing cryptocurrency. It might, but they are focused with a bearish sentiment around crypto and I cannot see any progress made unless there is a shift in overall appreciation.
II. Riot. Riot is a leading public Bitcoin mining company. The price of this stock tends to follow Bitcoin as the company is directly working with the cryptocurrency. Furthermore, they are a leading contributor towards Bitcoin and the ecosystem. This may be a good play if the ETF goes through since BTC will be acknowledged by the SEC as a safer currency.
III. Hive. Hive, in January this year, announced they began to deploy 5800 Intel Blockscale accelerator-based mining systems that they designed themselves. The company is known for optimizing their hardware in order to improve efficiency and lower power consumption, making it more affordable for people or companies to mine Bitcoin. At an affordable price, I think I will personally take a position into Hive. This is not financial advice.
IV. Mastercard. Mastercard, in 2021, announced they are bringing crypto into their network. The company recognizes the value of Bitcoin from its price and the amount of customers they found purchasing crypto with their cards. In 2022, Mastercard introduced "Crypto Source(TM), a program that enables financial institutions to bring secure crypto trading capabilities and services to their customers" (Mastercard to bring crypto trading capabilities to banks ). You can read more about their program using the source mentioned.
V. Nvidia. Nvidia is a given to anyone who knows about crypto mining. To mine crypto efficiently, you will need large amounts of processing power. In almost all cases, users will construct a device called a rig. Rigs are machines that comprise of two key components. CPU's and GPUs. Similar to Hive, Nvidia produces their own high power GPUs that retail and institutional consumers purchase in an effort to mine Bitcoin at higher speeds while cutting the cost of power. Nvidia has been a big player for cryptocurrencies since the very beginning and continues to produce better GPUs every year.
VI. Block. Block, which was once known as Square, is a financial services and online payment company that provides hardware and software solutions. Block offers their own Credit Card, developed Cash App, and bought Tidal in 2021. The key factor which exposes Block to the crypto space is Cash App. Though Cash App, you can buy, sell and receive cryptocurrency. Furthermore, the CEO of of Block, Jack Dorsey, is incredibly optimistic about Bitcoin, referencing that it could be the native currency of the internet. In addition, in 2021 Dorsey launched TBD, an open developer platform to increase accessibility in creating decentralized finance applications.
VII. Cleanspark. Cleanspark is a Bitcoin mining company with an energy technology background. Cleanspark is known for using a sustainable energy mix that includes nuclear, hydroelectric, solar, and wind to mitigate environmental impact from mining the stable coin. Recently, Cleanspark has agreed to acquire two turnkey Bitcoin mining facilities for $9.3Million in cash. From my research, the company is incredibly productive where the CEO Zach Bradford reassures investors that they will achieve their year-end target of 16 EH/s's. In other words, Cleanspark is buying the dip on BTC by making purchases for a discount in companies and hardware to boost their infrastructure to prepare in the next Bitcoin rally.
VIII. Robinhood. Robinhood, like Coinbase, is a platform where you can trade cryptocurrency. Unlike Coinbase, Robinhood also allows stock trading. However, that is really the whole exposure. Robinhood has larger competitors such as PayPal and Coinbase, both of which have a stronger reputation than Robinhood. I think Robinhood might be a longer term play, but I would not consider a position until the Bitcoin ETF is announced. Compared to other companies I have mentioned, Robinhood has the least impact on cryptocurrency fundamentally, but it is another company that many use to trade crypto and so the price may go up.
IX. Blackrock. Blackrock, the most recent company to file with the SEC for a Bitcoin spot ETF, will probably benefit from it in terms of stock price. This is because multiple other funds have tried to create their own spot ETF, but none has been approved. If Blackrock is able to create the ETF, I think the stock will move. Other than that, nothing incredibly immediate will impact the price of the company or Bitcoin when looking at cryptocurrency. Again, the SEC will need to believe Blackrock's market-manipulation proposal before anything happens.
X. Marathon Digital. Marathon Digital is one of the largest digital asset technology company in North America. Marathon Digital takes pride in their ability to sustainably mine Bitcoin, and the BTC ecosystem. in May of this year, mined 77% more Bitcoin than they did in April. CEO Fred Thiel mentions that it was possible from their increased hash rate and significant increase in transaction fees. Marathon Digital also increased their operational computing power by 9% to 15.2 EH/s. This makes the company a key player in maintaining the stability of Bitcoin and the block chain. For comparison, in April, Cleanspark mined 78 Bitcoin, Riot achieved 61 Bitcoin and Hive produced 81 bitcoin/EH. Whether or not Marathon Digital can keep up these numbers to compete with other companies is unknown, but investors are optimistic. As for me, if the ETF goes through I think a long term hold might be a good risk to reward play at the current price, if not lower.
As I continue writing, BTC is back up to $30,000.
Conclusion
I. It is incredibly difficult to chart cryptocurrencies. There are trends, supports and resistances, but cryptocurrencies are fundamentally different than stocks. Each stock is usually a company, there are earnings reports, news around the companies, acquisitions, mergers, ect. Cryptocurrencies are a single entity supported by numerous companies and investors from all over the market. Determining the price:value ratio is really set by solo entities grouped together which makes technical analysis not entirely efficient. The closest comparison I could make would be stock ETF's since they comprise of a bunch of different contributors and impacted by numerous factors related to each stock held by the ETF.
II. Whether one of the companies does better or worse than another, should be realized based on their individuality. There are plenty of times where Bitcoin goes up, and other stocks go down. There are times where these companies have gone up, but Bitcoin has gone down. My attempt in this article is to try and bunch them together under strong possible bullish evaluation of Bitcoin by the SEC. Realistically, these stocks could go either direction, some more than others. However, I am bullish for these stocks if the ETF becomes tradable.
III. Do I realistically think that the SEC will approve? I mentioned I am slightly bearish with an overall neutral sentiment. But then again, at the very least I think the SEC and Coinbase need to come to terms with one another. If that happens, then Blackrock needs to be more transparent in their goals and standards set with Coinbase, Nasdaq and the SEC. From there, I think we might see some progress. To put a shoe on the other foot, given that other exchanges have Bitcoin ETFs, accompanied by BTC Futures, there could be a change that the proposal moves onwards.
IV. Should you invest in Bitcoin or any of the stocks I mentioned. That is entirely up to you. In this post, nothing should be seen as financial advice or be taken as a “you should buy” or “this stock will go up”, because you definitely may lose money along the way. Trade at your own risk, understand what you are getting into and make a decision based on your own personal goals, finances, and whatever else you base your trades on. None of what I say should influence you, that's not my intent.
To be clear, my intentions are to look at the history of Bitcoin, and provide my contribution towards the conversation of the Bitcoin ETF, Blackrock, Coinbase, and what companies might profit off of the possible approval of the ETF . I could be entirely wrong, so do your own research. There could be other reasons why, the price goes up or down, but for now these are my thoughts and ideas into each stock I have mentioned and Bitcoin. How you choose to act, and perceive this information including future profits and losses is entirely up to you.
I hope you find this information informative and consistent. I enjoyed making this post and I hope it finds you well.
Right now, Bitcoin is trading for around $30,000.
Thank you for reading! If you would like to read the past Deep Dives, take a look at the Medium! I will be posting this article either sometime today or tomorrow. I enjoy writing these articles and your support encourages me to continue researching for different opportunities in the market.
Thank you again for reading
$Coinbase(COIN.US$ $Riot Platforms(RIOT.US$ $Hive Blockchain(HIVE.US$ $MasterCard(MA.US$ $NVIDIA(NVDA.US$ $Block(SQ.US$ $CleanSpark(CLSK.US$ $Robinhood(HOOD.US$ $Blackrock(BLK.US$ $Marathon Digital(MARA.US$ $SPDR S&P 500 ETF(SPY.US$ $Apple(AAPL.US$ $Spdr Series Trust S&P Regional Bkg Etf(KRE.US$ $Dow Jones Industrial Average(.DJI.US$ $SoundHound AI(SOUN.US$ $Palantir(PLTR.US$ $Tesla(TSLA.US$ $Microsoft(MSFT.US$ $C3.ai(AI.US$ $Invesco QQQ Trust(QQQ.US$ $Rivian Automotive(RIVN.US$ $Alphabet-C(GOOG.US$ $Carvana(CVNA.US$ $Nasdaq(NDAQ.US$ $Bitcoin(BTC.CC$
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