Displaying items by tag: bitcoin

Many have speculated that one of the catalysts for the rally in bitcoin is due to precious metals investors shifting allocations. Both assets offer protection against inflation and appeal to investors concerned about long-term monetary and economic instability. Gold and bitcoin have also enjoyed strong performances in recent months and are trading at or close to all-time highs.

However, this conjecture is not correct, according to JPMorgan. It doesn’t see outflows from gold ETFs into bitcoin ETFs. Instead, the bank notes that institutional investors, retail investors, and hedge funds have been buyers of futures of both assets since February. Since February, about $7 billion of bitcoin and $30 billion of gold futures have been bought. It also notes that both assets are extended over a short-term timeframe, leading to the risk of a pullback.

JPMorgan also believes that MicroStrategy’s recent purchase of $1 billion in bitcoin in 2024, in addition to its $1 billion purchase in Q4 of last year, has also contributed to upward pressure for bitcoin. According to the bank, this does lead to more risk in crypto as “bitcoin purchases by MicroStrategy add leverage and froth to the current crypto rally and raise the risk of more severe deleveraging in a potential downturn in the future.”

Finsum: Many believe that one of the catalysts for the rally in bitcoin is that precious metals investors are shifting allocations. However, this is not correct, according to JPMorgan. 

With the introduction of Bitcoin ETFs in January 2024, financial advisors are getting more questions from clients about whether it makes sense to consider these types of investments for their portfolios.

One topic that will undoubtedly get more attention in the press this year (2024) is the Bitcoin halving event, likely to occur in spring or early summer. Regardless of their view on this asset type, advisors should prepare themselves for client questions regarding this event.

Essentially, the Bitcoin protocol has pre-programmed events that periodically reduce by half the amount paid to the entities that verify Bitcoin transactions. Payments to these entities, called miners, are the only way new Bitcoins enter circulation. This means the rate at which new Bitcoins enter circulation is reduced. The point when the reward to miners is reduced by half is called a halving event.

The impact of a halving event on Bitcoin’s price is complex and debatable. Some believe that the reduced rate of new supply will cause the price of Bitcoin to rise. Others might make the case that factors beyond supply will have a more significant impact on the price in the future. Regardless, the performance of Bitcoin around the time of previous halving events is no guarantee of future price movements.

Finsum: Bitcoin is closing in on a halving event, and advisors should know the basics to answer client questions.

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.

A skirmish over fees preceded the long-awaited SEC approval of Bitcoin ETFs, which finally arrived on January 10th. Just days before the historic green light, applicants, including BlackRock and ARK, amended their proposals, slashing or eliminating management fees to woo early investors. This sudden fee competition presents a unique opportunity, favoring those who invest in these ETFs first.

BlackRock's ETF, for instance, carries a 0.30% annual fee, preceded by a mere 0.20% introductory rate for the first year or $5 billion in assets under management (AUM). ARK amended their application, indicating they would waive their 0.25% fee during an introductory 6-month period for the first $1 billion in AUM. These pricing moves reflect the intense competition brewing in the nascent Bitcoin ETF space.

Why the sudden price drop? One answer lies in the inherent simplicity of Bitcoin ETFs. Unlike traditional, diversified index funds with hundreds of securities, these products hold primarily just one asset – Bitcoin. This reduces complexity, leaving ample room for fee compression. Consequently, fees are poised to become a differentiator, influencing investor decisions in this uncharted territory.

However, navigating this new landscape requires caution. Investors should closely scrutinize underlying investment structures and track records of issuers. Due diligence is paramount when navigating this rapidly evolving space.

Finsum: The era of cryptocurrency ETFs begins with a race to lower fees, with many initial issuers slashing fees during introductory periods.

The mainstream financial world is all over the place when it comes to crypto however, Bridgewater Associates is planning on increasing their exposure to digital assets. The firm has made it clear they have some small investments in crypto, Dalio himself advises investors to allocate a small portion of their portfolios into crypto. It will most likely only be a small portion of their $150 billion portfolio but it is in phase 1 of 2. Marshall Wace, Point72 and Brevan Howard have all made crypto investments in the last year.

Finsum: Biden’s most recent crypto executive order legitimizes crypto in many investors eyes because it brings it into the traditional realm.