According to Anthony Pompliano, founder of Pomp Investments, Bitcoin is becoming a key asset for the younger generation. He believes that most investors struggle to outperform benchmarks, so incorporating Bitcoin into their portfolio may be the only way to keep up.
Bitcoin saw a surge to $49,000 on Thursday, its highest level since December 2021, before dropping to around $43,000 on Friday. This significant increase comes after a 150% rise in 2022, following a previous steep decline.
Despite Bitcoin’s impressive performance, many traditional investors missed out on the rally. VanEck CEO Jan van Eck explains that this is because fiduciaries, financial advisors, and banks have been advised to avoid cryptocurrency due to its unregulated nature.
However, this mindset is starting to shift, as the Securities and Exchange Commission (SEC) recently approved the sale of spot bitcoin ETFs. This allows investors to purchase Bitcoin in the same way they purchase stock and bond index funds. Though SEC Chair Gary Gensler remains cautious about crypto investments, this has not stopped the increase in activity.
For example, mutual fund manager Advisors Preferred Trust is now investing up to 15% of its total assets for indirect Bitcoin exposure through funds and futures contracts. Pompliano notes that many passive funds are seeking ways to improve performance, making Bitcoin a desirable option.
Bitwise Asset Management, one of the 11 issuers granted initial approval for a bitcoin product, is primarily targeting financial advisors and family offices with its Bitwise Bitcoin ETF. This ETF offers the lowest fee at 0.2% of holdings.
A survey conducted by Bitwise and VettaFi, a data-driven ETF platform, found that 88% of advisors interested in purchasing Bitcoin were waiting for the approval of a spot bitcoin ETF. Among advisors who already invest in crypto, there has been a significant increase in large allocations (more than 3% of a portfolio) from the previous year.
Matt Hougan, Chief Investment Officer at Bitwise, believes that a low-cost bitcoin ETF will be the easiest way for the majority of people to invest in Bitcoin. Data from Robinhood also shows that the majority of bitcoin ETF trading volume is in individual accounts.
Additionally, even before the SEC’s announcement, the 2022 CFA Institute Investor Trust Study revealed that 94% of state and local pension plans had some exposure to crypto. With the introduction of new products, such as Bitcoin ETFs, retirement plans may have more legitimacy and lower costs to increase their allocation in this space.
Financial firms offer different advice on how best to enter the crypto market. Galaxy Digital suggests that the strongest improvement occurs when portfolios move from 0% to 1% bitcoin allocation. WisdomTree recommends adding bitcoin to a traditional 60% equity and 40% bond portfolio for better risk-return profile. Fidelity also acknowledges that bitcoin can boost portfolio returns, but its effectiveness as an inflation hedge is still uncertain due to the low inflation rates throughout most of Bitcoin’s history.
Matt Walsh, founder of Castle Island Ventures, predicts that high-growth tech stocks and commodity-based portfolios, such as gold funds, may be the first to invest in Bitcoin ETFs. However, he also expects a broader appeal for this digital gold.
In conclusion, the recent approval of bitcoin ETFs by the SEC has sparked a significant increase in interest and activity in the cryptocurrency market. As more traditional investors and financial firms jump on board, Bitcoin is becoming a benchmark asset for the younger generation.
