Bitcoin
Bitcoin ETFs are courting a new investor who could rebalance bitcoin as it soars
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Crypto’s culture encourages investors to “HODL”, or hold on for dear life, on the rollercoaster of Bitcoinextreme fluctuations.
But this long-valued practice could decline as ETF adoption grows, especially if traditional investors who are accustomed to rebalancing their portfolios regularly increase exposure to bitcoin.
Cryptocurrency has become increasingly institutionalized in recent years and since the launch of exchange-traded funds this year that track the price of bitcoin, this trend is expected to increase – especially as different wirehouses, exchanges, and advisors begin enabling client access to ETFs.
“There are so many people in this community who are just diamond holders,” Donald Marron, director of economic policy initiatives at the Urban Institute, said this week at the Vision 2024 conference in Austin, Texas. “If you convince them to allocate 1% [to bitcoin] today… and never touch it, they would see huge wealth gains if you were on the path to a much higher bitcoin price.”
“If there are people who are actually doing what I think of as traditional asset allocation, they are going to face a question every quarter, every month, every year about whether they are going to rebalance,” he added. “From a risk management perspective, rebalancing is a good thing. But rebalancing also means they will be salespeople along this journey.”
At some point, each HODLer becomes a seller, according to Julio Moreno, head of research at CryptoQuant. Right now, long-term holders are selling, as is normal during bull markets, after accumulating bitcoin during bear markets.
Matt Hougan, chief investment officer at Bitwise Asset Management, issuer of Bitcoin Bit by Bit ETF (BITB)said investors should treat bitcoin “like any other asset…add it to a portfolio and include the rebalancing process” – pointing to bitcoin’s traditional four-year cycle of three good years followed by one down year.
“Bitcoin has boom and bust cycles,” he said, speaking at the Vision conference, a crypto investment forum for advisors organized by the Digital Assets Financial Professionals Council. “When you add rebalancing to your portfolio, the impact on sharps and other measures increases dramatically.”
Sharpe ratios help investors evaluate the return they get from an investment relative to the amount of risk they take on.
Rebalancing could help ease bitcoin’s notorious volatility — one of the biggest things keeping many investors away from the asset, according to Michael Allegue, chief investment officer at MassMutual.
“As more and more institutional capital comes in, there is potential to dampen volatility as many other companies, including us, will likely rebalance books – not be purely buy and hold,” Allegue said.