BlackRock bought $1 billion worth of BTC right on the eve of the dip. Is that a catastrophe?

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As a seasoned analyst with over two decades of experience in the financial markets, I have seen my fair share of market volatility and sudden shifts. The recent events surrounding BlackRock’s investment in Bitcoin are a classic example of how even the most strategic moves can be met with unexpected market turbulence.

It’s reported that, on the brink of Bitcoin’s price drop, the top global asset management firm, BlackRock, allegedly invested $1 billion into Bitcoins. This sudden decline in BTC price can be attributed to the Federal Reserve Chair’s announcement about a shift in rate cut strategy. The announcement also included comments that cast doubt on future Bitcoin reserve plans.

⬇️ The price adjustment for Bitcoin extends through Friday, December 20th! 🇺🇸 The top digital currency has plummeted by more than 13% in a mere 48 hours, descending from its record peak of $108,364.💔 This substantial market transformation is primarily attributed to the U.S. Federal Reserve’s recent “hawkish” 0.25% interest rate reduction and…

— Bitcoin.com News (@BTCTN) December 20, 2024

On December 18, 2024, Jerome Powell’s statements as U.S. Federal Reserve Chair are likely to stand out in history due to their impact on the crypto market. To the amazement of many, the Fed suggested a decrease in the number of rate cuts for 2025: instead of four cuts as previously anticipated, there will only be two.

It’s often the case that reduced interest rates tend to stimulate the cryptocurrency market. A potential decrease in these rates, then, could be an indication of a bearish trend. Moreover, Powell stated that the central bank has no authority and shows no inclination towards holding Bitcoin (BTC).

Dogecoin fell by 26%, Ether decreased by 16%, while XRP dropped by 18%. Data from CoinGlass shows that approximately $1.4 billion worth of leveraged long positions were liquidated in a single day. Even stock markets experienced significant drops.

Was a one-billion-dollar BlackRock investment in Bitcoin a fatal mistake?

It might seem like purchasing a billion dollars’ worth of Bitcoin just prior to a market dip would have been disastrous. Yet, looking at BlackRock as an example, we can see that even a large purchase at an apparently unfortunate time might not prove fatal over the long run.

As per Arkham’s report, BlackRock invested approximately 1.5 billion dollars in Bitcoins over the course of a single week. This significant investment was made right before the price drop, which occurred between $103k and $107k. In essence, this means that BlackRock acquired nearly 10,000 Bitcoins at that time.

By December 20th, BlackRock had acquired more than half a million Bitcoin (553,000 to be exact), which equates to approximately 2.6% of the entire Bitcoin supply. This addition represented a 1.8% growth in the Bitcoin holdings of their iShares Bitcoin Trust (IBIT).

As an analyst, I’ve been delving into the latest financial data, and according to Fintel, BlackRock’s total holdings are currently valued at approximately $4.7 trillion. However, other sources suggest that BlackRock’s overall holdings might exceed $11 trillion. Regarding Bitcoin, it appears that its share within these holdings is relatively small. This aligns with the recent advice from BlackRock, which recommends allocating up to 2% of a multi-asset portfolio towards Bitcoin as a means to mitigate market volatility.

It’s regrettable that we missed the chance for a better buying opportunity when Bitcoin’s price dipped below $93,000 the day after. Yet, the robustness of BlackRock’s portfolio means this decline in value won’t cause much fuss. Given how frequently Bitcoin has bounced back from crashes to reach even higher values, this price drop is insignificant. What truly matters is our continued acquisition of Bitcoins, which consistently increase in worth and become increasingly scarce over time.

BlackRock and the Bitcoin scarcity discussion

It seems that BlackRock is the prime beneficiary of Bitcoin’s scarcity. Interestingly enough, it was BlackRock who sparked the online debate about the immutability of the famous Bitcoin’s 21 million hard caps. 

JUST IN: BlackRock releases 3 minute educational video explaining what #Bitcoin is.

— Bitcoin Magazine (@BitcoinMagazine) December 17, 2024

On the 18th of December, BlackRock published a 3-minute instructional video about the fundamentals of Bitcoin. At one point in the video, there’s a caption stating, “It’s important to note that the limit of 21 million Bitcoins may not remain unchanged.

This little remark did not go unnoticed by the crypto enthusiasts and professionals. The Bitcoin historian and the Gorilla Pool founder Kurt Wuckert Jr. took to X to raise the question about possible reasons that made BlackRock “lube up the idea of adding inflation.” 

Changing the 21 million limit on Bitcoin’s supply isn’t outrightly unfeasible; it can be achieved through a process called a hard fork within the community. Yet, such a decision could potentially impact Bitcoin’s long-term stability as the first cryptocurrency. The primary protection of Bitcoin relies on the motivation of miners. However, if the scarcity factor is eliminated, the rewards may decrease, weakening the network and making it more susceptible to threats.

Multiple individuals responded to Wuckert stating that the hint of removing the hard cap appears to serve as a legal disclaimer in case Bitcoin turns inflationary. Some also expressed the viewpoint that the forked Bitcoin without a 21 million limit might not be considered true Bitcoin, while those deeply committed to the original version will continue to support it.

Conclusion

BlackRock is open to exploring the relatively novel digital asset, Bitcoin. Despite the fact that this company may already hold a significant portion of the total Bitcoin supply, it’s cautious about investing more than it can afford to part with. The recent investment in Bitcoin is simply another strategic move by a corporation recognizing the inherent value in Bitcoin itself. In essence, one Bitcoin is always equivalent to one Bitcoin.

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2024-12-24 16:32