SAN FRANCISCO, California – Bitcoin has emerged as a prominent asset among younger investors, signaling a shifting trend in investment preferences. As Anthony Pompliano, founder of Pomp Investments, asserts, “Bitcoin is beginning to become a benchmark asset for the younger generation.” This growing interest in Bitcoin has motivated many investors to consider adding it to their asset allocation, hoping to keep up with the market’s latest developments.
The price of Bitcoin surged to as high as $49,000 on Thursday, a level not seen since December 2021. However, it experienced a slight drop on Friday, settling around $43,000. Despite this volatility, the cryptocurrency witnessed a remarkable 150% growth in 2023, bouncing back from a challenging year in 2022.
Although the 2023 rally captivated a significant portion of the investment world, many fiduciaries, financial advisors, and banks refrained from engaging with cryptocurrencies due to their unregulated nature. VanEck CEO Jan van Eck reveals that they were explicitly instructed in the past “not to touch crypto.” However, this cautious attitude changed on Wednesday when the Securities and Exchange Commission (SEC) cleared the sales of spot bitcoin ETFs. This development allows investors to access bitcoin in a similar manner to when they purchase stock and bond index funds.
In response to the evolving market landscape, mutual fund manager Advisors Preferred Trust is investing up to 15% of its total assets, through funds and futures contracts, for indirect bitcoin exposure in its Hundredfold Select Alternatives Fund. This strategic move demonstrates the growing interest in passive funds that seek ways to increase performance.
Among the 11 approved bitcoin product issuers, Bitwise Asset Management offers the lowest fee at 0.2% of holdings. Their Chief Investment Officer, Matt Hougan, notes that their Bitwise Bitcoin ETF primarily targets financial advisors and family offices. Hougan highlights that advisors are progressively carving out an allocation of 1% to 5% for cryptocurrencies, acknowledging their interest in this asset class and their anticipation of an ETF approval.
According to a survey conducted by Bitwise, 88% of financial advisors interested in purchasing bitcoin were waiting for the SEC’s approval of a spot bitcoin ETF. Additionally, the survey reports that large allocations of more than 3% of a portfolio to crypto more than doubled in 2023 compared to the previous year.
Financial firms express differing advice on the best strategies for entering the crypto space. Galaxy Digital suggests that portfolios experience the strongest marginal improvement by moving from a 0% to 1% bitcoin allocation. Furthermore, WisdomTree highlights that adding bitcoin to a 60% equities and 40% bonds portfolio can improve the risk-return profile and lead to substantial outperformance.
The recent SEC approval has introduced new possibilities for retirement plans. Before this announcement, the 2022 CFA Institute Investor Trust Study revealed that 94% of state and local pension plans already had some exposure to cryptocurrencies. The availability of new bitcoin products grants these retirement plans more legitimacy and lower costs for increasing their allocation to crypto.
As investors and financial institutions navigate this changing landscape, Castle Island Ventures founder Matt Walsh predicts that funds focusing on high-growth tech stocks will be the quickest to enter the market. However, he also expects a broader appeal, including commodity-based portfolios that view bitcoin as a form of digital gold.
In summary, Bitcoin has gained significant traction as a benchmark asset for the younger generation of investors. Its recent surge in price, coupled with the SEC’s approval of spot bitcoin ETFs, has spurred interest among financial advisors and institutions alike. This evolving landscape opens up new possibilities for passive funds and retirement plans to integrate bitcoin into their investment portfolios. As investment strategies continue to adapt, market participants will closely monitor the impact of cryptocurrencies on performance and risk profiles.