In today’s issue, Andy Baehr from CoinDesk Indices breaks down bitcoin’s price action.
Then, Leo Mindyuk from ML Tech provides insights into advisor sentiment and how they can help their clients in Ask an Expert.
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It has been an action-packed 2024 for bitcoin and other digital assets.
For financial advisors, this can mean one of two things:
Advisors who have been eager to allocate to bitcoin now have an easier way to do so, and can think about what’s next.
Advisors who have adopted a wait-and-see approach may now start to get more questions from clients.
To recap the price action, bitcoin began to gain wider attention in the October 2023 rally when it became more clear that so-called “spot” ETFs would be approved and launched soon. Bitcoin was still trading below $30,000 at the time. The launch of 11 ETFs on Jan. 11 was a milestone for the digital asset world and broke ETF records.
Bitcoin’s rally continued until mid-March when it marked a new all-time high above $73,000, and the rally was broad across major digital assets. By March 13, bitcoin was up 72% on the year, ether up 75%, and the CoinDesk 20 Index 58%.
As the inflows into ETFs stabilized – with bitcoin ETFs now holding around $60 billion in assets – other factors came to dominate digital asset prices, again, with bitcoin leading the way. Foremost among these were Federal Reserve monetary policy, the upcoming U.S. election and ramifications for crypto regulation and some crypto-specific housekeeping to provide resolution to some of crypto’s “teething pains” of the past.
These factors, in aggregate, created uncertainty about digital assets with bitcoin receiving particular focus. Bitcoin, as a store of value, is sensitive to macroeconomic factors such as inflation and interest rate expectations. Our favorite metric is expectations for future real interest rates: To the extent that the market believes that future inflation will trend higher than future nominal interest rates, bitcoin will look more attractive.
Bitcoin, and digital assets more broadly, have had a more constrained regulatory environment in the United States than other countries and regions. There are without question feelings about how different U.S. presidents and administrations will handle crypto regulation, and whether the U.S. will be permitted to “catch up to the rest of the world.”
The market also anticipated large pools of bitcoin that could come to market as one-time supply. Resolutions of the Mt. Gox bitcoin exchange debacle of 10 years ago and sales of seized bitcoin by regulatory authorities in the US and Germany made some buyers wary. However, by Q3, most of these concerns were resolved.
In the six months following bitcoin’s new all-time-high in March, we saw bitcoin retrace and other assets fare worse. However, this gloomy sentiment shifted notably on Sept. 18, when the FOMC assertively cut rates by 50 basis points. The price of bitcoin lifted, but even more affirming was the rebound in the broader crypto market, with the CoinDesk 20 index outperforming bitcoin by 4% in the week and a half following the Fed’s cut.
As the U.S. election looms, more macroeconomic data comes in to contour expectations for the Fed’s pace of easing, and other factors such as geo-political events in the Middle East jolt markets, folks will watch the price of bitcoin and the broader market for their reaction.
Longer term, these assets represent, in the eyes of many, the future of finance. Bitcoin has a unique position here, as the largest, oldest, and, in many ways, simplest cryptocurrency. It exists mainly just to be sent from one address to another, with constrained supply, a 15-year track record of security and a powerful network. It is a store of value, one that is still young and under-adopted but one that has faced and survived anything the global financial universe has thrown at it. It remains a great place to start for investor education and portfolio consideration. Oh, and it’s the best-performing asset across all major asset classes in eight of the last 11 years.
But after bitcoin, what’s next? This is a big question for many advisors who don’t want to become crypto specialists but also don’t want to miss out on the biggest growth opportunities for Web3, smart contracts, Defi and other themes that blockchain assets offer.
– Andy Baehr, CFA, head of product, CoinDesk Indices
Q. What is the current advisor sentiment towards digital assets?
Advisors invested in digital assets are currently navigating an evolving landscape due to new crypto products, regulatory developments and a shift toward broader adoption.
The regulatory landscape remains fragmented globally. The U.S. has been slower in implementing cohesive crypto regulations, though efforts to regulate stablecoins and exchanges are underway. Meanwhile, other regions like Asia and the UAE are more progressive, providing clearer regulatory frameworks.
Advisors must stay informed to help clients navigate the dynamic digital asset market, particularly as crypto transitions from early adoption to more mainstream investment opportunities.
Q. Why is it important to understand where advisors stand on digital assets?
Digital assets are becoming an increasingly important component of portfolio diversification and risk management strategies. Cryptocurrencies offer attractive correlation to traditional investments, potentially reducing overall portfolio risk. Advisors are exploring these assets to enhance diversification, especially as digital assets mature and institutional products like spot Bitcoin ETFs become available. This allows for broader participation without the technical challenges of direct ownership.
Q. How can advisors offer clients protection from the recent volatility?
Encouraging clients to focus on the long-term potential of digital assets can help reduce emotional reactions to volatility. Historically, markets like bitcoin have experienced cyclical volatility, but many long-term holders have benefited from price appreciation over time. Advisors can help clients maintain a disciplined investment strategy, emphasizing long-term gains over short-term speculation.
With these approaches, advisors can help clients gain exposure to the upside potential of digital assets while minimizing the risks associated with market volatility.
– Leo Mindyuk, CEO, ML Tech
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The Federal Bureau of Investigation created a crypto token to attract crypto scammers.