In the Business of Making Small Percents From a Large Customer Base...

... that is the base model of operations that banks probably invented. And if they didn't invent it, they perfected it.

I say banks, but it is so widely used. Asset management firms, insurance companies, hedge funds, and pension funds, all take their management fee regardless if they make any profit or loss, if they are good or bad managers.

If we extend the model from a percentage base to a subscription model, there is a wide array of businesses that charge a small subscription to their customers for their services. A subscription that when you take it separately, is very affordable (you'd be a foul to let it go, right?), but once you start adding up the subscriptions you might have, maybe some forgotten about but still taken out from your wallet at due days, the amount piles up.

The point of a well-constructed fee-based system (or subscription model) is to be like a pyramid, with the basis where it should be: down. That means there is an access fee or base subscription to the service that seems cheap to a large category of users, if you are selling a widespread service like the internet and cable TV, for example. This should allow you to form a large basis of customers. To these customers, you can then sell addons, if they are interested. Those who take an additional option, a little more expensive, could be interested in something even more expensive. And so on. And that's how the subscription model becomes a pyramid.

Source

Returning to the financial system, and more specifically to asset managers, having a 0.5% annual fee can become very profitable the larger the assets under management become, especially if it's a rather passive fund.

For Bitcoin spot ETFs, for example, despite being a fee war among asset managers (except Grayscale, which is confident enough not to participate), they will earn an annual fee (some have waived it for 6 months, for promotional reasons), which is taken regardless of the price of bitcoin or if the ETF customers make money or not.

All they need is to convince holders of significant assets to HODL, regardless of what bitcoin is doing because they are doing money the more assets under management they have.

Normally, that should have a positive impact on the price of bitcoin, because customers will be tempted to sell if bitcoin doesn't do well.

From what I heard, these asset managers won't be forced to buy or sell bitcoin for every operation their customers make, but rather something like every day or so. Sounds like what banks do with their balance sheets and how they set their balances straight at the end of the day. That means fewer bitcoin transactions, larger, and amounting to the sum of share movements throughout the period (both purchases and sales). If purchases dominate, then bitcoin is bought at the end, if sales are higher, than bitcoin needs to be sold.

Either way, unless they take less fees than the operational costs, these managers will always make a profit no matter how bitcoin is doing. But to continue to have large assets under management, which is how they measure success, Bitcoin needs to do well too.

Want to check out my collection of posts?

It's a good way to pick what interests you.

Posted Using InLeo Alpha