The door was opened.
With the approval of the Bitcoin Spot ETF by the SEC, the precedent was set whereby a host of financial products can be built. This is what Wall Street does.
Bitcoin is simply another asset class to the financial industry. It is quickly realizing the ability to leverage it for massive gain.
Since the approval, billions of dollars rolled into the ETFs with Blackrock leading the way. We are still in the early stages and it is logical to conclude this will easily surpass the gold ETFs.
Will it end here?
My view is Wall Street is just getting started. There were a number of things the approval by the SEC did which provides the opportunity for the financial institutions to build upon.
In this article we will go through what I think the next Bitcoin product will be.
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Wall Street likes to layer products. It is known for taking a product that was created and then piling something else on top of it. Over time, the tentacles start to spread to the point where we cannot even follow an ownership trail.
For this reason, we can conclude these entities are going to follow a similar pattern.
So what will Wall Street do next concerning bitcoin?
As a side note, notice I am focusing upon BTC. We know there are already applications filed pertaining to an Ethereum ETF. This makes it impossible to predict when approval will arise.
That said, I see the next area that Wall Street enters is with Bitcoin lending. We are already seeing the infrastructure established to do this.
What is uncertain is how it will be designed. I can see this starting as something that is provided to institutions but, eventually, spreading to the retail side of things.
Of course, we saw this in the DeFi world. However, with Wall Street, everything is taken to a bigger level.
The process of designing a Bitcoin Spot ETF meant a custodian system was required. This is in place. Since Wall Street has a way to custody the asset, it can then start the process of putting them to work.
When it comes to financial institutions, this means collateralization.
Financial people hate having assets sitting around doing nothing. If they can earn a return, that is what they seek. Here is where a lending platform using bitcoin as collateral makes a lot of sense.
It is a process that is done daily by financial institutions with other assets. U.S. Treasuries head the list but things such as commercial paper are regularly used. This would hold great appeal to banks, insurance companies and hedge funds. These are entities that are usually sitting on significant assets.
Hence why I view this as very appealing to the different institutions.
Since there is a way to custody the bitcoin, the platform could be designed to leverage the asset for cash that can be utilized elsewhere.
Is this something that could extend to the real sector?
It is highly possible although I am sure there are a lot more hurdles to jump through regarding regulation and getting the SEC's approval. Again, we know Wall Street is persistent in this endeavor and, once there is approval, things start flowing.
There will likely come a day when people can get loans against their digital assets. It is something that makes sense and, considering DeFi, not that difficult a system to develop.
Here is where the regulatory burden hinders Wall Street. It is, however, only temporary. These financial firms have the ability to navigate the process to eventually get things approved.
This is why it is hard to predict the timing on things. Institutional lending, i.e. amongst themselves, is a much easier path. That said, they will want to ultimately extended to the masses (as long as they can make money off it.
Could we see a day when one goes to Chase for a loan and uses BTC as collateral? That is something that I think very likely. These institutions do it with houses and, if bitcoin is indeed "digital real estate", the process is similar.
If we go one step further, it is actually a better situation for the banks. Dealing with a property is a nightmare. There is a lot that goes into a foreclosure and, ultimately, unloading the property. With bitcoin, it is a matter of simply calling in the collateral and reselling it.
One way to soften the regulatory impact is to go the "accredited investor" path. Here is where Wall Street gains some flexibility. It is likely to end up here since the average person is not going to have much BTC. Since it is fixed, Wall Street will gobble it up.
Wall Street is a game for the wealthy.
The average person can play but is rather limited. To start, we are late to every game. By the time these things are open to everyone, a large portion of the money was made.
With bitcoin, this is put on steroids.
Wall Street is going to ensure the price of bitcoin keeps moving higher. As it creates more products, demand will grow. However, we have to understand most of it will be within their ecosystem. They are taking control.
There will be a few crumbs for the rest of us. If we look at any Wall Street asset class, how much is owned by retail. Very little.
We are going to see a repeat. Thus, for those who do have some BTC, the early adopters, it will be a windfall. Of course, there does come a time when retail people sell out.
This brings up two points:
The second one is key.
Average people protect their profits by selling. Financial institutions simply take out a loan against the asset. Hence why, in this situation, BTC will go in and not exit.
It is something that takes on an added dimension as bigger players such as sovereign wealth funds and large hedge funds get involved.
Even if offered to the masses, they probably will not utilize this opportunity unless it is framed in a different manner.
This is the opportunity for DeFi and the basis for an upcoming article.
