ETFs
Bitcoin ETFs court new investor who could rebalance Bitcoin as it soars
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Crypto culture encourages investors to “HODL,” or hold on for dear life, on the roller coaster of bitcoinextreme fluctuations.
But this popular practice could decline as adoption of ETFs grows, especially if traditional investors those who are accustomed to rebalancing their portfolios regularly add exposure to bitcoin.
Cryptocurrency has become increasingly institutionalized in recent years and since the launch this year of exchange-traded funds that track the price of bitcoin, this trend is expected to increase – especially as different transfer companies, brokerage, and advisors begin enabling client access to ETFs.
“There are so many people in this community who are just diamond holders,” Donald Marron, director of economic policy initiatives at the Urban Institute, said this week at the 2024 Vision conference in Austin, Texas. . “If you convince them to allocate 1% [to bitcoin] today…and never touch it, they would see huge wealth gains if you were on the path to a much higher Bitcoin price. »
“If you have people who are actually doing what I consider traditional asset allocation, they will face the question every quarter, every month, every year whether they will rebalance,” he added. “From a risk management perspective, rebalancing is a good thing. But rebalancing also means they will be short throughout this journey.”
At some point, every HODLeur becomes a seller, according to Julio Moreno, head of research at CryptoQuant. Currently, long-term holders are selling, as is normal during bull markets, after accumulating bitcoin during the bear market.
Matt Hougan, chief investment officer at Bitwise Asset Management, the issuer of Bitwise Bitcoin ETF (BITB)said investors should treat bitcoin “like any other asset… add it to a portfolio and include the rebalancing process” – pointing to bitcoin’s traditional four-year cycle, consisting of three good years followed by a year of decline.
“Bitcoin has gone through boom and bust cycles,” he said at the Vision Conference, a crypto investing forum for advisors hosted by the Digital Assets Council of Financial Professionals. “When you add rebalancing to your portfolio, the impact on sharps and other metrics increases significantly.”
Sharpe ratios help investors evaluate the return they get from an investment relative to the level of risk they take.
The rebalancing could help ease bitcoin’s notorious volatility — one of the main reasons that keeps many investors away from the asset, according to Michael Allegue, chief investment officer at MassMutual.
“As more institutional capital comes in, there is potential for volatility mitigation as many other companies, including us, will likely rebalance their books – they won’t just buy and conserve,” Allegue said.