Imagine, just the day before Bitcoin's crash, the world's leading asset management company BlackRock dumped $1 billion into buying Bitcoin! Is this madness or wisdom? Is it a doomed gamble?
On December 18, 2024, a few words from Federal Reserve Chairman Powell ignited a firestorm in the cryptocurrency market. Surprisingly, the Fed proposed to reduce interest rate cuts in 2025: only two cuts next year, while the market had previously expected four. Rate cuts were a boost for the crypto market but have now become a bearish signal. To make matters worse, Powell clearly stated that the central bank neither allows nor is interested in holding any Bitcoin.
Immediately, several experts referred to the 25 basis point reduction in the federal funds rate as a 'hawkish' or even 'aggressive' move. This action triggered a panic sell-off in the crypto market. Bitcoin plummeted 13% within 48 hours, and many altcoins suffered even worse: Dogecoin fell 26%, Ethereum dropped 16%, and Ripple fell 18%. According to CoinGlass data, over $1.4 billion in leveraged long positions were liquidated in a single day, and the stock market also took a significant hit.
So, was BlackRock's $1 billion investment in Bitcoin a fatal mistake?
You might think that buying $1 billion in Bitcoin just a day before the crash is a disaster. However, let's take BlackRock as an example and see if this unfortunate timing will be fatal in the long run.
According to Arkham, BlackRock spent $1.5 billion on Bitcoin within a week. Of this, $1 billion was invested just before the crash, with prices between $103,000 and $107,000, meaning the company purchased nearly 10,000 Bitcoins.
As of December 20, BlackRock owned over 553,000 Bitcoins, accounting for approximately 2.6% of the total Bitcoin supply. This investment increased the total Bitcoin holdings of IBIT (BlackRock's iShares Bitcoin Trust) by 1.8%.
According to the latest data from Fintel, BlackRock's total holdings are valued at up to $47 trillion. However, other sources estimate BlackRock's holdings to exceed $110 trillion. Among these holdings, Bitcoin's share is negligible, which aligns with BlackRock's recent suggestion to allocate a maximum of 2% of Bitcoin in a diversified asset portfolio to hedge against market volatility.
Indeed, missing a better buying opportunity a day after the crash is unfortunate. However, when Bitcoin's price fell below $93,000, the overall value of BlackRock's portfolio was high enough to easily absorb this value drop without causing too much of a ripple. Considering that Bitcoin has recovered to higher values after multiple 'crashes', this price drop is almost negligible. More importantly, BlackRock is acquiring more Bitcoins, whose value grows over time and becomes increasingly scarce.
It seems that BlackRock is one of the biggest beneficiaries of Bitcoin's scarcity. Interestingly, it was BlackRock that sparked the online debate about the immutable nature of Bitcoin's famous 21 million hard cap.
On December 18, BlackRock released a 3-minute educational video explaining the basics of Bitcoin. At one point in the video, the subtitles read: 'There is no guarantee that the 21 million supply cap of Bitcoin will not be changed.'
This small remark did not escape the eyes of cryptocurrency enthusiasts and professionals. Bitcoin historian and Gorilla Pool founder Kurt Wuckert Jr. questioned on X, exploring the possible reasons why BlackRock is 'advocating for increased inflation.'
Removing the 21 million supply cap is not impossible. The Bitcoin community can achieve this through a hard fork. However, the consequences of this action could shake the future sustainability of the first cryptocurrency. Broadly speaking, Bitcoin's security relies on incentives for miners. But if Bitcoin is no longer scarce, the reward value may decrease, leading to reduced network protection and increased vulnerability.
Several users replied to Wuckert, stating that mentioning the potential removal of the hard cap was merely a formal disclaimer to avoid lawsuits during inflation in Bitcoin. Others argued that a forked Bitcoin without the 21 million limit would no longer be Bitcoin but something else, and the hardcore community would insist on using the original version.
BlackRock is willing to try this relatively new asset. No matter how much Bitcoin this company already owns, it will not risk investing more than it can afford to lose, and the recent purchase is just another transaction by a company that surely sees the intrinsic value of Bitcoin. After all, one Bitcoin always equals one Bitcoin.
For more news analysis, real-time price analysis, and SWAP cross-chain exchanges, please visit: 🤖👉 visit mlion.ai
The above content is for informational sharing only and does not constitute any investment advice! Investment carries risks; enter the market with caution!
Follow me for more market information shared daily.