The U.S. economy is anticipated to enter a recession in the initial half of the year, driven by a prolonged slowdown in economic momentum and a cooling inflationary environment, rendering the economy more susceptible to shocks. Leading indicators in the U.S. have entered a recessionary phase after 19 consecutive months of declines, nearing a record low.
Various late-cycle dynamics, such as struggling retailer shares, weak commodities, softened employment, elevated corporate bankruptcy filings, and an inverted yet steepening yield curve, contribute to the economic concerns. Media references to a "soft landing" have surged, a precursor to official recession declarations. $BTC faced its only U.S. recession from January to April 2020, plummeting 60% before rebounding post-Fed liquidity injection.
Similarly, gold tends to decline early in recessions, although its recent upturn underscores demand for non-cancelable hard money, a trait shared with Bitcoin. Given sovereign debt concerns, an expectation exists for over $2.4 billion to flow into newly approved U.S. spot Bitcoin ETFs in Q1 2024, maintaining Bitcoin's elevated price. Despite potential volatility, the Bitcoin price is forecasted to remain above $30,000 in Q1 2024.
In approximating Bitcoin ETF inflows, historical ratios from the SPDR Gold Shares (GLD) ETF are examined and adjusted to 2023 dollars. The GLD ETF, launched in 2004, experienced initial inflows of $1 billion in its early days and reached $2.26 billion by Q1 2005, equivalent to 0.1% of the global gold supply. Applying these proportions to the Bitcoin spot market suggests initial inflows of $310 million in the first days of a BTC spot ETF and approximately $750 million within a quarter.
Acknowledging the different financial landscape in 2023 compared to the "Dead Ball" era, where interest rates were higher and money supply lower, a logical adjustment is made based on the M2 supply. The ratio of M2 supply from November 2004 to October 2023 (3.23x) is applied, leading to an estimated $1 billion in the early days of a spot Bitcoin ETF and $2.4 billion within a quarter.
Extrapolating further to a mature state of the BTC ETF, around 1.7% of the total spot market for BTC is envisioned, amounting to $12.5 billion. Considering Bitcoin's assumed market share gains from gold and increased awareness of debt-driven money printing in 2024, a medium-term estimate projects $40.4 billion in inflows over the first two years of trading.
Finally, it is noted that Coinbase charges retail traders a 2.5% transaction fee, contrasting with an anticipated ~10 basis points spread for spot Bitcoin ETFs, potentially catalyzing higher adoption due to a 10x cost reduction in comparison to traditional fees.
