While bitcoin bears argue the spot Bitcoin BTC -1.65% exchange-traded fund trade is “done,” they are missing two key factors, according to analysts at research and brokerage firm Bernstein.

Arguments against the Bitcoin ETF trade revolve around early allocations being driven by retail investors, with institutional involvement confined to the basis “cash and carry” trade rather than net long positions, meaning the ETF flows are not “real,” Gautam Chhugani and Mahika Sapra wrote in a note to clients on Tuesday.

The Bernstein analysts agreed that recent 13F filings revealed the institutional share in spot Bitcoin ETF participation was just 22% and that rising liquidity in CME bitcoin futures contracts post-ETF launch was evidence of the basis trade.

However, what the bears are missing, Chhugani and Sapra wrote, is the spot Bitcoin ETFs are “on the cusp of approval” at major wirehouses and large private bank platforms in Q3 or Q4 this year, echoing recent views from Bloomberg ETF analyst Eric Balchunas and Bitwise CIO Matt Hougan.

The Bernstein analysts claimed the institutional basis trade is a “trojan horse” for adoption, and these investors are now evaluating “net long” positions as they get comfortable with improving ETF liquidity.

The basis trade here refers to a strategy where institutional investors arbitrage the difference between the spot and futures prices, buying the spot Bitcoin ETFs and selling the CME bitcoin futures contracts, aiming to capture a profit from the price spread when the futures contract matures.

“We believe the ‘basis trade’ is mostly driven by hedge funds ~ 36% of the institutional allocation. However, based on our conversations with investors dabbling in Bitcoin ETFs, the next step after the basis trade is evaluating ‘long’ positions,” the analysts said.

“Further, allocations pertaining to financial advisors is actual demand, and 13F disclosures reveal mostly small-mid advisors with 0.1-0.3% of their portfolio allocated to Bitcoin ETFs. We believe growth will be driven by larger advisors approving ETFs and substantial allocation headroom within existing portfolios,” they added.

Another factor is the increased adoption of bitcoin as a treasury reserve asset, with new FASB guidelines making it easier for corporations to hold the asset on their balance sheets by accounting for mark-to-market gains rather than only impairment losses. “We expect a fresh incremental demand from corporate treasuries in 2024, with MicroStrategy and bitcoin miners leading demand today. Recently, Block announced monthly buying of bitcoin from bitcoin-linked gross profits over next 12 months,” Chhugani and Sapra said.

Bitcoin ETFs are ‘not done’

While the U.S. spot Bitcoin ETFs are currently on a four-day net outflow streak totaling $714.4 million, with another $154.4 million exiting the funds on Tuesday, the Bernstein analysts expect net inflows to begin accelerating again.

“We expect Bitcoin ETF inflows to again accelerate in Q3/Q4 and the current choppy markets are providing new entry levels, before the next leg of institutional demand picks up. Tactically, low to mid $60Ks/high $50Ks (if we get there) should be interesting entry points,” they said.

$60,000 is the new $10,000 for bitcoin

Last week, Chhugani and Sapra raised their price target for bitcoin to $200,000 from $150,000 by the end of 2025, driven by expectations of unpreceded demand via the spot Bitcoin ETFs and bitcoin miner marginal cost of production modeling. Ultimately, the analysts target bitcoin to reach $500,000 by the end of 2029 and $1 million by 2033.

Reiterating those targets to clients today, the Bernstein analysts said that bitcoin in the current $60,000 range is equivalent to prices of under $10,000 in June 2020, at the same interval post-bitcoin halving.

Despite bitcoin’s significant 53% rally from around $42,000 at the start of the year, it may be still early in the cycle, the analysts added. 

“The change this time is the visibility to institutional demand driven by the ETFs and the organizational marketing push by leading asset managers, for e.g Blackrock at $20 billion AUM for Bitcoin ETFs has seen the opportunity, and may well likely see visibility to a potential $80-100 billion crypto business over the cycle,” they wrote. “We think asset managers have every incentive to push harder on marketing and distribution to scale their crypto business.”

Gautam Chhugani maintains long positions in various cryptocurrencies.