Airplanes are interesting toys, but of no military value.
~ Ferdinand Foch
(French General and Military Theorist)
In October of last year, I wrote an article entitled “Bitcoin and National Security.” That article explored Bitcoin’s ability to serve as a “truth machine” and why that functionality had implications beyond Bitcoin’s role as money alone. In promoting Bitcoin as a medium of truth, I was trying to give credence to the idea that governments, especially governments that supposedly support freedom, would be wise to embrace Bitcoin rather than to blindly dismiss it because of overly simplistic notions such as “but we already have PayPal.”
Since writing that article, a few developments have occurred that imply that policy-makers within the US are beginning to look more favorably on the crypto space:
- In January of 2024, the SEC approved a “spot” ETF for Bitcoin.
- In May of 2024, the SEC approved a rule change that paves the way for an Ethereum ETF.
- In early June of 2024, the House Financial Services Committee held hearings on the potential impact of tokenization of real world assets.
This last item, the congressional hearing, was noteworthy in that it revealed a bipartisan softening of the anti-crypto stance that had previously engulfed Washington. To be clear though, crypto is still not a big enough market for it to be immune to larger macro forces. Credit and debt cycles, inflation, global conflicts: all of these can drag down the crypto market regardless of the emerging tailwinds.
That government officials are beginning to see what Vellum has seen since 2017 is somewhat heartening, but that softening stance presents an entirely new set of variables. Prior to the Bitcoin ETF approval, most crypto observers would assert that Bitcoin’s price action is largely dictated by its block rewards being “halved” approximately every 4 years. Enter Blackrock. Now the “supply shock” of the halving seems like a much smaller deal. Perhaps in time the ETF inflows and outflows will be much more important than the halving.
With Bitcoin having reached a high of approximately $74K this year, it’s current price of around $62K is unsettling to some, and in fact, price action over the past month does indicate that ETF activity is very important. On June 4th, ETF inflows were just shy of $900M. It was the largest day of inflows since the ETF’s approval. On June 5th, BTC hit a local high of about $71K. Since then, outflows have outpaced inflows, and price action has been consistently down, though $59K has held as a viable support zone.
Though there have been positives coming out of Washington, I’m certainly not concluding that government officials are ready to declare Bitcoin part of our overall national security posture. The ETF for Ethereum is especially interesting, as it presumably greenlights a host of projects being built on Ethereum that were previously in the SEC’s cross hairs. The changing sentiment, regardless of where it originated from, is certainly welcome, and helps to confirm our long term investment thesis.
