Displaying items by tag: crypto

The highly anticipated launch of Bitcoin exchange-traded funds (ETFs) in early January was met with a wave of excitement, with investors eager to gain exposure to this burgeoning asset class. However, their enthusiasm was quickly dampened as Bitcoin's price took a hit, dropping nearly 13% in the following days.

Despite the rocky start, a sense of cautious optimism has returned to the ETF space. Bitcoin's recent price surge has reignited investor interest, fueling a significant increase in inflows into these funds. CoinShares, a leading crypto asset management firm, reported (02/19/24) a record-breaking $2.4 billion flowing into Bitcoin ETFs last week, representing a remarkable turnaround.

This renewed demand presents a unique challenge for financial advisors. With clients increasingly inquiring about the potential role of Bitcoin ETFs in their portfolios, advisors need to navigate the complex landscape of this new asset class. While these ETFs offer a convenient way to gain exposure to Bitcoin, their inherent volatility demands careful consideration. Unlike traditional investment options, Bitcoin exhibits significant price fluctuations, making it a riskier proposition for many investors.

Finsum: Bitcoin ETFs got off to a rocky start in January, but flows into these funds are recovering remarkably as the cryptocurrency’s price soars.

The SEC has approved the first set of bitcoin ETFs this week following a long review process. Multiple ETFs began trading on Thursday to prevent any firm from having a first-mover advantage. So far, the iShares Bitcoin Trust is the leader in terms of inflows followed by the Bitwise bitcoin ETF and the Fidelity Advantage Bitcoin ETF.

This may adversely affect demand for gold as investors will have another option to diversify portfolios. According to Joy Yang, the Global Head of Index Product Management at MarketVector Indexes, these new ETFs will likely result in gold remaining range bound around current prices due to less interest from investors. She believes it could be similar to 2021 when gold underperformed during the bull market in cryptocurrencies.

Still, she doesn’t see gold falling below $2,000 in 2024 and is bullish on it in the longer-term due to geopolitical risks and economic and financial uncertainty. And she acknowledges that gold has more upside if the Fed is forced to cut more aggressively than currently anticipated. 

Overall, gold and bitcoin have many similarities despite one being less than 2 decades old, while the other has been around since the dawn of humanity. And both are ‘stores of value’ relative to currencies and offer protection against inflation. 

Finsum: Approval of multiple bitcoin ETFs is expected in the coming weeks. This is likely to have a negative impact on gold demand as investors will have another option to diversify their portfolios.

The cornerstone of modern portfolio theory rests on the principle of diversification – seeking uncorrelated assets to mitigate risk and enhance returns. Traditionally, stocks and bonds have been the primary players in this diversification game. However, crypto assets, often perceived as a volatile outlier, presents a curious proposition: could they hold the key to enhanced portfolio resilience?

Recent research suggests the possibilities. A study examining the correlation between Bitcoin and major market indices from early 2021 to mid-2023 revealed a noticeably low relationship. Compared to the S&P500 index, Bitcoin's 90-day correlation ranged from about 0.0 to 0.6. As compared to an aggregate bond index, Bitcoin's correlation ranged roughly between -0.3 and 0.3. Investors should consider all risks before adding an asset to their portfolio. Still, these results indicate that, in recent historical periods, Bitcoin has provided a diversification option for advisors and investors looking for ways to smooth their portfolio returns.

Of course, crypto's nascent nature and past volatility warrant caution. Unlike more traditional asset classes, crypto has yet to experience multiple economic cycles, leaving its long-term behavior yet to be seen. However, its recent low correlation with traditional assets presents an intriguing opportunity for portfolio optimization.

Finsum: Bitcoin’s recent correlation with traditional asset classes offers an intriguing proposition: can it help mitigate overall portfolio risk?

Over the next few years, it’s expected that alternative assets will become a larger part of client portfolios. Advisors will have to contend with a changing landscape especially as more products will be introduced that are more complicated in terms of taxes and reporting. 

A looming challenge for advisors will be handling the increased workload as well as understanding these products in a comprehensive manner in order to explain it to their clients. It’s likely that asset managers will form partnerships with RIAs in order to help them navigate and simplify the process. Already, some asset managers have started to invest in efforts to educate advisors, but more will be necessary given the increase in the number of options.

According to Ernst & Young America's Financial Services, some advisors will increase allocation to alternatives to 10% or more. In the near-term, private credit products will see the strongest growth as they are seen as less risky while offering higher yields than fixed income.

In addition to private credit, most exposure to alternatives currently is through liquid alt mutual funds, liquid alt ETFs, and publicly-traded REITs. Over the next couple of years, areas forecast to have the highest growth in terms of assets are cryptocurrencies, digital assets, hedge funds, private equity, and private debt. 

Finsum: The alternative assets space is expected to heat up in the coming years. One challenge for advisors will be to understand these products and handling an increased workload. 

The cryptocurrency industry stands on the precipice of a potentially pivotal moment, with several applications for crypto-based ETFs awaiting approval by the US Securities and Exchange Commission (SEC). Recent activities suggest the SEC is actively preparing to issue its decisions, potentially within the next few months.

The world's largest asset manager, including BlackRock, has expressed increasing confidence in the SEC's approval of their spot Bitcoin ETF applications, possibly as early as January 2024. While the outcome remains uncertain, the SEC's recent engagements with applicants and its compressed 21-day public comment window indicate a focused and potentially accelerated decision-making process.

These developments have fueled speculation in the market, with some attributing the recent rise in Bitcoin prices to the anticipated SEC decision. Others cite the upcoming Bitcoin halving event in 2024 as a contributing factor.

Regardless of the specific drivers, the next few months will likely greatly impact the cryptocurrency landscape. The SEC's decisions on these ETF applications could have significant implications for investor access, market liquidity, and the overall development of the crypto asset class.

Finsum: Anticipation for SEC's decision on crypto ETFs grows, hinting at major shifts in market access to crypto-based investment vehicles.