New Bitcoin futures ETF could trigger rally to $168K: Analyst

Sean Farrell, Fundstrat Head of Digital Asset Strategy, discusses the potential effects of the first Bitcoin-linked ETF on the NYSE from ProShares.

Video transcript

AKIKO FUJITA: Well, we've seen Bitcoin pushing above that $60,000 level in the run-up to the launch of this ETF. Our next guest says this could trigger a Bitcoin rally with the digital currency soaring to $168,000 by year end. Let's bring in Sean Farrell, Fundstrat head of digital asset strategy. Sean, you certainly got my attention when I saw $168,000. Walk me through your thesis.

SEAN FARRELL: Hey, Akiko. First off, thanks for having me. So I'm sure a lot of people saw our head of research, Tom Lee's, note yesterday, citing the potential for over upwards of $50 billion of inflows in the first year of BITO's trading history. And I think the whole premise is based on the fact that a lot of people are discounting the unmet demand right now for exposure to Bitcoin in traditional financial markets.

And I don't recall where I saw this number, but I think somewhere around $24 trillion of assets being managed by professional financial advisors and financial planners don't have frictionless access to Bitcoin at the moment. And if we step back and just surmise that perhaps a few bits of that $24 trillion of capital is allocated to a Bitcoin, albeit futures-based ETF, we're looking at hitting that $50 billion figure pretty easily.

ZACK GUZMAN: Yeah, I mean, so far, the day one trading volume, I think, has as impressed a lot of people, from what we were just talking about there in this ETF, given the fact that, you know, it wasn't the same as owning spot Bitcoin outright. It's-- you've got to deal with some issues here. But it's baby steps. And I suppose, you know, Bitcoin's prices always move, a little maybe more volatile than what the news suggests. We saw that on the downside here when we were talking about China cracking down on mining.

So, maybe not completely unexpected to see a big pop today. It's, granted, not a huge pop, but Bitcoin moving up today off of the launch of the ETF. I mean, how soon is too soon to call this being as big as people are talking about? You know, it's one day of inflows, but I mean, how does it fit into the longer term thesis you have of that enthusiasm maintaining itself?

SEAN FARRELL: Yeah, Zack. I mean, it's-- I think when you look at, whether it be this ETF approval, the adoption of Bitcoin as legal tender by a sovereign nation, these are all just fundamentally huge steps in the development of Bitcoin as an asset in crypto, as an asset class.

Just to push back on your volatility comment, I think one thing I would probably criticize about that is that we've actually seen Bitcoin's volatility over the past one, two, three, five years gradually dampen. I think five years ago, the annualized daily volatility was around 80%. And these days, it hovers between 40% and 50% depending on the day. And, you know, there are certain know heavily traded equity securities in traditional markets that probably mirror that kind of volatility.

So, I mean, when you look at risk-adjusted returns, Bitcoin right now presents an unprecedented opportunity for traditional financial markets. And I think that this ETF really opens the gates for a lot of capital to come in and gain exposure to that opportunity.

ZACK GUZMAN: Let's talk about maybe some more volatility out there, if people are getting bored, you know, tongue in cheek a little bit here, with the volatility in Bitcoin, but your note cited, you know, what we've seen this year, at least in Ether's price moves. And we've been talking a lot about Bitcoin's dominance, of course, the market cap percentage that it takes up in the total cryptocurrency space. We've seen that fluctuate and come down quite a bit. It's been building momentum as of late.

But when you kind of look at maybe where Ether goes in all this and you guys have a $10,000 price target, if I'm correct there, on Ether, talk to me about what maybe what we're seeing right now and Bitcoin's dominance coming down could mean for a set-up in Ether's rally to end the year as well.

SEAN FARRELL: Yeah, absolutely. So I mean, what we've seen in prior bull market cycles for Bitcoin is that Bitcoin generally leads the rally. Capital rotates, investors take their gains and rotate into altcoins, the most predominant heavily traded altcoin being Ethereum. So, normally, that garners most of the rotated capital. So, generally, Ethereum follows Bitcoin's move. And quite frankly, we think that a lot of people are overlooking Ethereum into the end of the year, just due to the fact that Bitcoin has garnered the lion's share of headlines.

You know, it's not-- you don't meet the average investor that is aware of recent software updates in the Ethereum network. Recently, they updated the network with what was called EIP 1559, in which transaction fees are actually burned, causing a disinflationary effect. And what we've seen with the recent NFT craze is that all of the non-fungible tokens that have been minted and traded on the Ethereum network have actually led to a rapid increase in the amount of Ethereum's supply burn.

So we're actually seeing both sides of the supply and demand equation have these creative effects on price, where there's a lot of demand for ETH, and simultaneously, the supply is growing at a much slower rate. And we think that once some more capital rotates into ETH, we're going to see some bullish price action for Ethereum, going to the end of the year.

ZACK GUZMAN: I think that that's probably an important point to highlight here as we wrap up, just because we've talked about maybe if NFTs are a bubble, even if you think that they're a bubble, it does play into the idea that you're talking about there in terms of ETH being burned, as you kind of move down those changes there to the network itself. I mean, is that maybe one of the take-home points you'd have for investors who might not be into the idea of NFTs staying as hot as they are right now?

SEAN FARRELL: Yeah, absolutely. If you're not-- if you're unsure about NFTs as a asset class, I mean, first, I would probably advise you to just research NFTs a little more. We're covering them more at Fundstrat, NF Insights. So you can follow us there. But it's a pretty broad terminology that covers any non-fungible asset that is secured by a blockchain. And I think there's a lot of potential for NFTs as an asset class moving forward.

But that said, if you want exposure to NFTs as an asset class without having a granular understanding of which JPEGs you should be putting into your portfolio, you can achieve exposure to NFTs through purchases of Ethereum. So that's certainly something to keep in mind.