Even before the recent approvals of many Bitcoin spot ETFs, wealth advisors were mostly bullish on the future of blockchain as an attractive asset class.
The fund approvals have now slammed the door shut on debate. Not only has the U.S. decided that digital monies, commodities, and assets are in all our futures, the U.S. judicial system is also providing a potential roadmap and runway.
As investors in early-stage Blockchain ventures, we believe the long-term appreciation of Bitcoin can be a price driver of valuations across the six distinct asset classes under the Blockchain umbrella. More importantly, we think advisors need to see the big picture here to maximize returns and diversification for their clients.
BITCOIN COMES OF AGE
It may seem odd that Bitcoin, the peer-to-peer cash created to serve investors wanting to break from the deflationary monetary policies of traditional fiat money and markets, would appear in ETF form.
However, the reason is very simple. Most investors can’t self-custody their investments, or they prefer to work with intermediaries who help them invest. While the most efficient way to invest in Bitcoin is to buy and hold it yourself, and while it is also true that if you don't control your Bitcoin keys, you don't own the Bitcoin, millions of investors have been waiting for 'traditional ways' to gain exposure.
ETFs provide a low cost, easily accessible and tradeable way to gain entrée to an asset class that, according to Morningstar, was the highest performing asset that they track in 8 of the last 11 years.
So, it is no surprise that with the help of Bitcoin ETFs, demand has exceeded the new supply of Bitcoin mined by over 7 times and Bitcoin Spot ETFs have not been the only buyers of Bitcoin this year. In fact, many other exchanges, marketplaces, and custodians have also seen their users buying Bitcoin.
ADVISORS TAKE NOTICE
A comprehensive benchmark survey of more than 400 financial advisors was published January 4 by Bitwise Asset Management and VettaFi, focusing on attitudes toward crypto assets. While 11 Bitcoin spot ETFs were approved just after this report published, some key findings are still illuminating and even more relevant:
- Many advisors viewed Bitcoin ETF approvals as a needed catalyst with 88% of them interested in purchasing bitcoin after that milestone was hit.
- 98% of advisors who currently have an allocation to crypto plan to either maintain or increase that exposure in 2024.
- Among advisors who allocate, the size of the allocation is rising. Large crypto allocations (more than 3% of a portfolio) more than doubled, from 22% of all client portfolios with crypto exposure in 2022 to 47% in 2023.
- Client interest remains strong. 88% of advisors received a question about crypto from clients last year.
- Held-away assets remain a major opportunity. 59% of advisors said “some” or “all” of their clients were investing in crypto on their own.
Advisors know full well that if they don't assist their clients in gaining access to the most attractive investment opportunities, they will ultimately go elsewhere. Financial advisors should also have a holistic sense of the diverse and growing digital asset universe that they can tap into.
BEYOND BITCOIN
Advisors need to grasp the bigger picture that digital monies, commodities, and assets are inevitable. The value and wealth creation resulting from upgrading the world's financial infrastructure will dwarf the internet’s impact, which was the largest driver of investment alpha and wealth creation over the last few decades.
The key challenges to blockchain and its offshoots are mostly resolved, barring lingering U.S. regulatory uncertainty. Younger clients, so-called “digital natives,” are demanding low cost, fast and easy access to the asset classes they want to invest into, and for many crypto is their top ranked investment opportunity.
Digital natives are also entering their peak earning, saving, and investing years, and forward-looking wealth advisors need to embrace this reality. Serving boomers will only be a sufficient strategy for another handful of years.
Returns matter, and Bitcoin has demonstrated since inception that it can deliver superior risk-adjusted returns when compared to almost any other asset class or investment. Now is an ideal time to broaden the investment spectrum, because the most important investors in the world are beginning to appreciate what every savvy investor knows -- Blockchain exposure is no longer a 'nice to have.' It is a 'must have'.
Matthew Le Merle is Managing Partner of Blockchain Coinvestors.
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