Bitcoin continues to draw investor attention and interest as prices climb higher and fundamentals strengthen. Matthew Kimmell, digital asset analyst at CoinShares, joined Roxanna Islam, CFA, CAIA, head of sector and industry research at VettaFi in the Alternatives Symposium hosted on the VettaFi platform. The two discussed bitcoin and the state of the crypto economy this year.
Bitcoin prices notched a number of new record highs this year, including soaring above $120,000 for the first time mid-July. Kimmell attributed price gains this year to the macro environment, rife with growing fiscal deficits and rising investor skepticism around government debt. Ongoing geopolitical risks and global tensions also leave bitcoin favorably positioned due to its fiscal neutrality and supply scarcity.
The other key drive of bitcoin prices according to Kimmell were the “structural unlocks” for the cryptocurrency. These included ongoing demand for bitcoin ETFs, with cumulative flows this year potentially on track to surpass year one flows. Additionally, the Fair Value Accounting for Bitcoin went into effect mid-December 2024. This allows corporations to hold bitcoin on their balance sheets, and they’ve been adding in increasing amounts this year.
Matthew Kimmell, digital asset analyst at CoinShares
“In Q2, the flows into bitcoin from corporates actually exceeded the ETFs, and we’re on track in Q3 to do the same,” Kimmell explained.
A Different Regulatory Environment
The most significant change this year for U.S. crypto investors is the shift in U.S. regulatory policy regarding cryptocurrencies. The current administration included in its first 100 days the establishment of a Strategic Bitcoin Reserve. Its also made many strides in setting out a regulatory framework for digital assets in the country, including bitcoin, stablecoins, and more. These changes mark a significant shift in policy from years of inaction and an intensely cautious approach by U.S. regulators.
“If the U.S. government is accumulating bitcoin, buying bitcoin as part of a strategic reserve, and they start to explain explicit strategies towards that, I don’t think the impact could really be undersold,” said Kimmell. “I think it adds credibility on really, a whole other scale.”
Given that regulatory risk remained a top concern for advisors surveyed by CoinShares in the past, increasing regulatory support could prove a boon for demand. Kimmell was careful to note that demand driven from regulatory changes would likely be more long term than immediate.
Investment Opportunities in Bitcoin & Beyond
Within a portfolio, bitcoin generally falls into one of two buckets for investors. It’s either used primarily for speculation, or it’s being deployed conservatively by larger institutional investors testing the waters. These investors, with longer time horizons and significant capital, typically start with a 1% allocation to bitcoin. While it’s currently less than 1% of the market in Europe, Kimmell noted that those institutional investors trying bitcoin investing often go on to increase allocations up to 5% within their alternatives sleeve.
For those investors who may not want the risk profiles associated with cryptocurrencies, bitcoin mining equities offer an attractive alternative. Bitcoin miners typically benefit when bitcoin prices rise, and that’s certainly been the case this year. However, they’re also benefiting from the surge of AI investment and interest in data centers.
“Under the hood, they’re professional data center businesses that have really specialized in operating data centers and procuring cheap electricity,” explained Kimmell. “With the AI boom, there’s been a tremendous amount of investment in energy and a need to park machines in different facilities that brought some attention to these companies.”
Harness Crypto Potential This Year With CoinShares
Coinshares offers a suite of crypto ETFs for investors with the risk appetite for a more volatile asset class as well as those seeking opportunity in bitcoin miners. These include the CoinShares Valkyrie Bitcoin Fund (BRRR) and the CoinShares Valkyrie Bitcoin Miners ETF (WGMI).
BRRR provides exposure to bitcoin’s price movements with the ease of access through traditional brokerages. Through BRRR, investors can capture bitcoin price movements while avoiding many of the extra steps required with direct bitcoin investment, such as storage. The fund is a trust that passively holds bitcoin (meaning it’s physically backed). The bitcoin held is custodied by Coinbase, BitGo, and Komainu, with private keys kept in cold storage. BRRR carries management fees of 0.25%.
WGMI offers pure-play exposure to bitcoin miners in North America. The strategy invests in those companies earning at least half their profits or revenue from bitcoin mining. The fund invests in companies providing hardware, software, or services to bitcoin mining companies. Additionally, the strategy seeks companies that manufacture specialized chips used in bitcoin mining. WGMI does not invest in bitcoin. WGMI carries an expense ratio of 0.75%.
For more news, information, and strategy, visit the CoinShares Crypto ETF Hub.
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