Retirees with $6tn are eyeing Bitcoin ETFs: ‘That order will just buy forever’

For all the inflow records they’ve broken, the new spot Bitcoin exchange-traded funds, launched in January, have yet to show investors what they’re really capable of.

That’s because millions of people with individual retirement accounts still haven’t had the opportunity to get exposure to the products, Darius Tabai, co-founder of decentralised perpetuals exchange Vertex, told DL News.

But once they do, the floodgates will open in what he said will be a “constant uptake of physical coins.”

According to Nasra, a national trade association of national and local retirement funds in the US, public pension assets in the United States were nearly $6 trillion at the end of last year.

‘And once you get millions of people doing that, that’s when you see the real effect of it. That naturally takes time.’

—  Darius Tabai, co-founder of Vertex

A former global head of metals trading at Merrill Lynch and Credit Suisse, Tabai said that ETFs tend to simply swallow assets up.

“Unless they’re very badly run, they only go in one direction,” he said.

So why have the Bitcoin ETFs stalled?

‘Press the button’

After two months of aggressive inflows, most of the funds have seen days without any flows whatsoever — and even net outflows in some cases.

But that’s just the nature of Wall Street, according to Tabai.

“People don’t deploy their capital in one hit.”

“Put yourself in the shoes of a financial adviser. You’re never going to say to your clients, ‘put 20% or 100% of your money in Bitcoin,’” Tabai said.

However, if a portfolio already has good returns, advisers may encourage clients to allocate 1% to 5% of their funds into Bitcoin, scaling in over time.

“When someone sets that up and presses the button, that order will just buy forever,” Tabai said. “And once you get millions of people doing that, that’s when you see the real effect of it. That naturally takes time.”

Gold blueprint

Drawing from almost two decades of trading precious metals, Tabai said that investors greatly underestimated the impact the gold ETF would have when it was launched in 2004.

“Everyone wanted to tell you that the ETF was not a big deal,” Tabai said. Pensions could already get exposure to the industry through mining companies — a thesis shared by investors and Bitcoin miners — and the gold ETF wouldn’t get traction.

But the precious metal rose about 370% in almost seven years.

Nowadays, the biggest gold ETF has over $61 billion in assets, and the commodity’s price is almost 500% higher than it was when the ETFs were launched.

Bitcoin is in a similar situation, Tabai argued.

“In crypto, Bitcoin miners provide a very direct comparison, but there’s also exchanges and other kinds of businesses with their own unique characteristics,” Tabai said. “Galaxy Digital is a great company, but it’s not a pure exposure to Bitcoin. Same with MicroStrategy.”

Galaxy Digital is a venture capital firm that invests in crypto projects. MicroStrategy is a software company that holds a large amount of Bitcoin in its treasury.

Still not 2021 yet

Even if pensions take a while to allocate to the ETFs, the bullish undercurrent is bound to benefit Bitcoin.

Tabai said there is “a lot of momentum” for crypto to keep rising over the next 12 months.

And he’s not particularly concerned about the Federal Reserve’s monetary policy either.

Barring a market crash, “you either see other markets stagnate and crypto grinding on asset reallocation, or rates get cut and that just adds fuel to the fire,” Tabai said.

There are other signs that Bitcoin still has a ways to go.

Tabai said that most of the mania seemed “internal to the market,” meaning that outside investors have yet to jump on the bandwagon.

“The parties are definitely a lot better at conferences than they were last year,” a metric which Tabai half-jokingly uses as “a broad interpretation of how bullish people are.”

Tom Carreras is a markets correspondent at DL News. Got a tip about Bitcoin ETFs? Reach out at tcarreras@dlnews.com