Using George Soros’ notion of reflexivity, Fred Krueger, a key person in the cryptocurrency arena, predicts a bright future for Bitcoin exchange-traded funds (ETFs).
Reflexivity, a theory articulated in Soros’ landmark essay “The Alchemy of Finance,” states that asset values rise when investor mood improves, leading to additional price increases.
Krueger uses this concept to Bitcoin ETFs and predicts a substantial influence on the cryptocurrency’s value.
This projection is based on Wall Street’s present tepid interest, which Krueger believes will change substantially as Bitcoin ETFs draw more assets, raising Bitcoin’s price and shifting the market bias towards more strong participation.
Reflexivity ripple in Bitcoin ETFs
According to Krueger, there is a cyclical mechanism by which boosting asset allocations to Bitcoin ETFs immediately raises the price of Bitcoin by enhancing investor mood and enticing further investments.
In stark contrast to this model, the gold market saw some price pressure following the launch of ETFs, but not as much as anticipated given the rise in Bitcoin.
The comparison between the market penetration of Bitcoin ETFs at 3.5% and gold ETFs at 1.5% highlights the magnitude of the potential impact. This suggests that reflexivity in the Bitcoin market is exerting far more price pressure.
Many have undervalued this dynamic, according to Krueger, by basing Bitcoin’s market behaviour on gold’s reaction to exchange-traded funds (ETFs), ignoring the particular elements at work in the developing cryptocurrency space.
Change in hedging strategies
A paradigm change in investment hedging techniques is being noted by a number of industry observers, with Bitcoin becoming more and more popular than gold.
The fast uptake and expansion of Bitcoin ETFs, dubbed the “portfolio’s hot sauce” by senior ETF analyst Eric Balchunas, not only supports this theory but also shows how quickly things are changing.
The leading Bitcoin ETFs have seen a doubling in net cumulative flows to over $3 billion in a couple of days, a rate of growth that is in sharp contrast to the typical pace of gold ETFs. This indicates that the momentum is real.
The aforementioned trend indicates a noteworthy shift in investor preferences, indicating the beginning of a new age in which Bitcoin has the potential to displace gold as the go-to inflation hedge in conventional investment portfolios.
