Source: freepik.com
In January 2024 the SEC in the US announced the approval of Bitcoin ETF which we may look back on as being a crucial event in the evolving Bitcoin story.
Before this announcement, investors in Cryptocurrency faced many risks including the following:
Cryptocurrency prices can be highly volatile, leading to rapid and unpredictable fluctuations in value.
Cryptocurrency exchanges and wallets are vulnerable to hacking and theft, resulting in the loss of funds.
Regulatory uncertainty: regulatory frameworks for cryptocurrencies vary from country and can change rapidly leading to uncertainty for investors.
Market manipulation: The cryptocurrency market is less regulated than traditional financial markets, making it susceptible to manipulation and fraudulent activities
Lack of Liquidity: Some cryptocurrencies may have low trading volumes, making it difficult for investors to buy or sell large quantities without significantly impacting the price.
Technology risks: Cryptocurrencies rely on blockchain technology, which is still relatively new and may be subject to technical vulnerabilities and bugs.
How does the launch of the spot Bitcoin ETF change the investment landscape for crypto?
A Bitcoin ETF now fits into the regulatory framework for large institutions which before this change made it not possible for the big financial institutions to invest.
Many of the big players like Blackrock and Fidelity have also had their own ETF approved, which is likely to see substantial demand from their investors.
Why now may be the time for the ‘savvy investor’ to look at adding a Bitcoin ETF to their portfolio:
Many analysts are now changing their opinion of Bitcoin as an investment due to the approval of the ETF. Before the approval, it is fair to say that investing in Bitcoin was high risk not only due to the volatility of the price movement but also the initial points mentioned in this article.
The approval of the Bitcoin ETF now potentially means to many observers that Bitcoin could be possibly considered a longer-term investment. The reasons for this are diversification, hedging risk by investing in an asset that is not correlated with bonds or the stock market, improve portfolios by adding an uncorrelated asset with high growth potential. Bitcoin is still likely to be a small part of the standard portfolio going forward and it will still be highly volatile.
The improvement in its regulatory status and the likelihood of the adoption of other crypto coin ETFs shortly is however likely to provide broad support and strong buying for the Bitcoin ETF leading to a higher price as more retail and institutional investors pile into this opportunity.
What is the new way to invest in Bitcoin?
So, we have discussed how previously investing in Bitcoin carried unacceptable risks for most investors and prevented them from investing in crypto. The ability for investors to now be able to invest in a Bitcoin ETF is a game changer for the following reasons:
The Bitcoin ETFs are regulated in the US and trade daily giving clients liquidity and peace of mind.
These ETFs can be held in private portfolios. Platforms, Portfolio Bonds, Trust and corporate accounts, and most financial products. This includes pension accounts and other accounts that global investors may use.
As more ETFs are launched the ability to easily and securely hold this asset class for the masses will only improve and consequently underpin the price of many of these assets.
Before the launch of the Bitcoin ETF holding Bitcoin in a wallet was not conducive to financial planning as it relied on various secure keys so the ability to pass this asset to beneficiaries was very difficult and caused millions of dollars of lost value.
With the Bitcoin ETF coming into the mainstream, this enables investors to include this asset in their financial planning. It can now be passed on through your Will or a Trust simply and easily.
It is hard to overstate the significance of the new Bitcoin ETF which was announced in January. Since January, not surprisingly, not only Bitcoin but many other crypto assets have seen huge gains as investors begin to see the significance and potential for this investment going forward.
Previously, Independent Financial Advisors such as Astra would have only recommended things like Bitcoin to extremely high-risk investors. At Astra, we are now happy to recommend Bitcoin to both balanced and growth clients and the ability to be able to manage this asset through simple and convenient platforms makes it cost-effective for clients and brings this investment into a client's financial plans.
Having an advisor like Astra also gives clients peace of mind knowing they have an advisor overseeing this asset for them. The benefit for the client is that your advisor can help and advise you when may be a good time to take profit or sell based on the direction and volatility of the asset.
Owning an asset like a Bitcoin ETF can sometimes make investors anxious so working through a financial advisory company like Astra can help reassure investors to decide when to sell or not. Bitcoin will likely continue to be a very volatile asset and for many clients who have a low threshold for risk, it will not be suitable.
A financial advisor like Astra can not only help you decide whether it is an appropriate asset class but more importantly can discuss with you when it may be wise to sell or reinvest.
In summary:
At Astra, we believe that the Bitcoin ETF is a ‘game changer’ that will almost certainly lead to a flood of similar products involving cryptocurrencies. Currently, the momentum behind Bitcoin and the halving in April are extremely compelling reasons why we believe the price of Bitcoin will rise significantly.
For now, the volatility in Bitcoin will remain, but in time as the adoption of cryptocurrencies like Bitcoin and Ethereum into the investing universe becomes more prevalent, this should reduce volatility and it may well become compared with other alternative investments like Gold.
The approval of the Bitcoin ETF also now means that your Astra advisor can easily help you to purchase this asset without the need for complex wallets which in the past have scared investors off. Your Astra advisor can help you choose the platform that best fits your budget and your financial situation while at the same time now making this asset class part of your overall portfolio.