As the leaves turned and summer faded into autumn, Wall Street’s banking behemoths and their well-heeled clients took a leisurely stroll into the enticing waters of bitcoin exchange-traded funds (ETFs). But while they may have only dipped their toes in the third quarter, a tidal wave of crypto enthusiasm could see them diving headfirst into the deep end as winter sets in.
Slow and Steady Q3 for Bitcoin ETFs
The most recent batch of 13F reports, which institutional investment managers are required to file quarterly, painted a picture of modest, steady accumulation of bitcoin exposure via ETFs among major banks’ wealth management clientele from July through September.
Goldman Sachs reported holding spot bitcoin ETF shares worth $710 million by quarter’s end, nearly doubling its clients’ holdings from $418 million in Q2. The lion’s share was allocated to BlackRock’s iShares Bitcoin Trust (IBIT).
Other titans of finance and investment, including Morgan Stanley, Bank of America, UBS, and HSBC, largely held their positions steady. The sole newcomer to the bitcoin ETF scene was Australia’s Macquarie Group, scooping up a $4.8 million stake in IBIT.
But the banks’ restrained approach mirrored bitcoin’s own somewhat stagnant price action between $53,000 to $66,000 during the quarter, giving their clients little impetus to make bold moves. According to one analyst, the reserved allocations reflected institutions’ typically tentative deployment of capital and preference to ride established trends rather than front-run potential breakouts.
Fourth Quarter Fireworks?
Of course, bitcoin’s rangebound days now seem like a distant memory. The world’s largest cryptocurrency by market value embarked on a historic surge in Q4, shattering its previous high to soar above $90,000 amid a flurry of bullish developments.
Not least among them was the resounding reelection of unabashedly pro-crypto U.S. President Donald Trump, sparking hopes of a renewed push for supportive digital asset policies and regulatory clarity in his second term.
“I expect a lot of scrambling behind the scenes to make sure institutions have at the bare minimum a 1% allocation due to crypto-friendly president Donald Trump and bitcoin breaking [records],” said James Van Straten, senior analyst at CoinDesk.
Indeed, bitcoin’s rapid ascent to uncharted territory may well trigger an acute case of FOMO – fear of missing out – among both retail and institutional investors who either slept on crypto or skimped on their initial stakes. After consecutive quarters of sideways shuffling, the prospect of an unfettered bull run could see Wall Street banks’ clients throw caution to the wind.
Beyond Banks: A Wider Awakening?
Though focused on a select group of legacy financial players, the 13F filings may portend a broader uptick in institutional engagement with digital assets and blockchain-based funds. With bitcoin’s latest surge thrusting cryptocurrencies back into the mainstream limelight and an incoming administration widely expected to lend the space greater legitimacy, Q4 could prove a watershed in the gradual institutionalization of crypto as an investable asset class.
Major corporates like MicroStrategy and Tesla are already leading the charge by directly adding bitcoin to their balance sheets. A continued rally – especially if it’s catalyzed and sustained by a fresh wave of high-profile adopters – may leave the more risk-averse wealth managers with little choice but to meet rising demand.
So while Wall Street’s upper crust may have been content to wade in the shallows this past quarter, don’t be surprised if the next 13F filings reveal a mass plunge into the deep end of the crypto pool. After all, there’s nothing like the heady combination of fomo and fumo – fear of missing out, and fear of underperforming one’s peers – to get the suits off the sidelines.
