The imminent launch of Bitcoin exchange-traded funds on Wall Street is being touted as a huge breakthrough for cryptocurrencies, as it will open up investing in the digital currency to institutional and retail traders.
This leads to the start of the latest bull cycle for the world's largest cryptocurrency, a bet that the likes of wealth managers and financial advisors will finally begin pumping a fraction of their trillion-dollar portfolios into the promising crypto sector.
This is due to the expected shift in regulatory orientations. It is expected that the US Securities and Exchange Commission, perhaps by mid-January, or before this date, will give the green light for Bitcoin funds to carry out their activities to buy and sell the cryptocurrency within the framework of these traded funds known for their tax efficiency and cost-effectiveness, which comes after a decade has passed. Rejecting requests to create it.
At first glance, this would offer a path to redemption for digital asset proponents a year after the FTX collapse, which sparked the industry's biggest existential crisis and endorsed the view of crypto naysayers who have long dominated traditional financing.
High level posts
Now, with potential participation from high-profile companies, such as BlackRock, Fidelity, and Invesco, the Bitcoin ETF market is capable of growing to $100 billion over time, according to estimates. Bloomberg Intelligence. Galaxy Digital Holdings Ltd., which is collaborating with Invesco on one such application, earlier this month reached out to nearly 300 investment professionals about Bitcoin allocation funds as the launch of exchange-traded funds approaches. , according to a person familiar with the matter.
Jeff Janson is one of those preparing for the launch of these funds, as a wealth management advisor at Summit Wealth based in Naples, Florida, has already received calls from young and older investors.
“We are now focusing our attention on the SEC’s decisions pending their final approval,” Janson, whose company manages about $550 million, said in an interview. I think once you can get that kind of legal framework, you'll see a lot of interest at the institutional level.
This atmosphere indicates a degree of optimism. For many, the shock waves that followed the collapse of FTX are still reverberating throughout investment circles, as interest in all things crypto-related pales in comparison to periods of feverish speculation on cryptocurrencies. After the epic collapse of the Sam Bankman-Fried empire, day traders were largely absent from the market. In light of the recent rally, Bitcoin remains close to its 2021 high.
Fraud events
Meanwhile, hedge fund managers like Paul Tudor Jones, who previously touted the advantages of digital assets, have been silent recently. Major asset managers have largely declined to articulate their vision of the crypto investment opportunity. There have been a series of fraudulent incidents, including false claims that Bitcoin ETFs were already approved, and that BlackRock had applied for a fund housing the cryptocurrency XRP—both claims that initially sent prices soaring— All of this has added weight to the industry's claims that it is moving beyond its turbulent past.
However, one of the fundamental reasons for optimism that has emerged recently has as much to do with the incentives provided by the money management industry as it does with the compelling appeal of cryptocurrencies in the financial system. Currently, only Bitcoin ETFs based on futures contracts are available to investors, and can incur additional costs that eat into returns. Investors who want loss-free Bitcoin gain access via trading platforms like Coinbase, or apps like Robinhood—meaning those overseeing their clients' portfolios give up the ability to directly oversee the flow of crypto investments.
Thus, ETFs are changing the game, according to Chuck Comello, who receives inquiries from millennial and high-net-worth investors about the revolutionary potential of Bitcoin-based ETFs.
It would be easy to initiate a trade—one that trades long in a client's investment advisory account, said Comello, president and CEO of Essex Financial Services, based in Essex, Connecticut.
Targeting institutions
There is further evidence that institutions may be the target ETF issuers are looking to target, as subtle indicators such as IBTC and BTCO suggest that these products will target the advisory services market.
“When indices are more entertaining, it generally appears that their target is younger retail investors, who in this case are not expected to be a large audience interested in such investments,” Eric Balchunas and James Seyfart of Bloomberg Intelligence wrote in a note.
Case in point: At Compass Financial Advisors, based in Fort Wayne, Indiana, Chris Swanson and James Weber have built a portfolio model, a kind of bespoke investment strategy. They often advise their clients on how to allocate a certain percentage to alternative assets, such as cryptocurrencies.
For example, a portfolio might be 55% stocks, another 25% bonds, and 20% cash, alternatives and digital assets. Following the launch of the spot funds, the company's existing crypto bets—Bitwise's Crypto Industry Innovators ETF, for example—will likely flow into Bitcoin ETFs once they are officially approved.
“We want to make sure we're performing well for our clients, and we think that will be a differentiator in how we perform, competing with other advisory firms,” Swanson said about crypto exposure.
caution
The warnings come from Leila Pence, founder of Pence Wealth Management, which provides advice to investment companies worth $2 billion. Bence says young clients' interest in digital assets has declined significantly since the pandemic days when all types of currencies were skyrocketing. She reminds them that in addition, the stock market is doing well this year as well.
She added, from the company's headquarters in Newport Beach, California: Why take risks when the S&P and Nasdaq indices have performed well this year, and this is safer and more reliable?
However, for those who expect the crypto market to rise, there is a more important point to be made, as ETFs will contribute to the improvement of a discredited asset class. Transparency and liquidity will also provide a compliance opportunity for institutions, which Coinbase believes will trigger new lending and derivatives deals.
The company said in a report: Therefore, the significance that the Bitcoin exchange-traded fund will represent when adopted goes beyond the immediate flows into these products, which could reshape the market in completely unprecedented ways. However, we believe this will take time to unfold.
