Financial Planners’ #1 Choice
TL;DR
If you’ve hesitated to invest in Bitcoin because of its overtly technical nature, financial planners’ most popular investment vehicle — ETFs — now makes exposure to crypto as simple as buying shares through your brokerage account.
By the time today’s issue hits your inbox, there’s a good chance Bitcoin (BTC) will be trading above $70,000.
Per coin.
Crypto is a contentious topic. It’s sort of like climate change: Many people — like this schmuck — don’t believe it’s real, and inaction is costing a lot of money.
Accordingly, it’s been nine months since we last wrote about it.
That was the start of October (or “Uptober” as enthusiasts like to call it). Since then, BTC has gained 157% … or $42,270.
For the record, that’s outperformed:
- Nvidia, which gained 154%.
- Meta, formerly Facebook, which gained 55%.
- Amazon, which gained 37%.
- Alphabet, formerly Google, which gained 28%.
- Microsoft, which gained 28%.
- ExxonMobil, which lost 1.37%.
- And Tesla, which lost 30%.
Today, Bitcoin’s trading around $69,240 with its all-time high of $73,835.57 within reach.
And like last time, when it breaches that level, we expect a massive selloff.
So why write about it now when a selloff looms and August and September are historically bad for the digital asset?
Because this time around, it’s highly unlikely that a selloff will be coupled with a subsequent, years-long bear market.
The last time BTC hit its all-time high, it was followed by a 74% loss that saw it bottom around $16,529 in December 2022. It dragged down the rest of the crypto market and sparked a “crypto winter.”
However, things aren’t the same today, which brings us to our next point …
Financial Planners’ Favorite Investment
What holds many people back from investing in crypto is an unfamiliarity with the landscape. It’s jargon-laden and requires a cursory understanding of blockchain technology and both centralized and decentralized exchanges.
The process can be confusing and convoluted, which has slowed adoption rates.
Good news: The most popular investment right now for financial planners eliminates the need to understand any of that.
Last week, the Financial Planners Association released its “2024 Trends in Investing” report.
And guess what wasn’t in it? Crypto. But guess what was? Exchange-traded funds (ETFs).
ETFs’ surge in popularity continues. In the past several months, we’ve written about them here. And here. And here.
We’re not alone, apparently.
According to the survey, 89% of financial planners are currently using or recommending ETFs, making them the most popular investment vehicle of 2024.
And 60% of respondents plan to increase their use of or recommendations for ETFs in the next year.
ETFs are equities that spread pooled funds out among multiple securities (be they a basket of stocks, commodities or derivatives), thereby offering lower downside risk than owning individual stocks.
But what do ETFs have to do with Bitcoin?
They can provide you with exposure to an entire industry or sector, an underlying benchmark like the S&P 500 index … and now, crypto.
Crypto Spot ETFs
On Jan. 10, 2024, the SEC approved the first Bitcoin spot ETF. Approval for Ethereum (ETH) spot ETFs — based on the second largest crypto by market cap — followed in late May.
In simple terms:
- The spot is the current market price of an asset.
- Spot ETFs allow you to invest in certain assets — like crypto — without having to directly own them.
While these equities are still new (and just as subject to the volatility that crypto is notorious for), they’re doing a good job of mirroring the performance of BTC and ETH for investors looking to gain alternate exposure.
For example, since debuting earlier this year, the Bitwise Bitcoin ETF (BITB) is up 47%. Another Bitcoin spot ETF — the VanEck Bitcoin Trust (HODL) — is up 48%.
Diversification Good, Overexposure Bad
After setting a record for inflows in 2021, ETFs are continuing to surge in popularity, with nearly $200 billion in inflows just in the first quarter of 2024.
We’ve written about the importance of diversification before. In short, it’s insurance against loss, and prevents one asset (or asset class) from devastating your portfolio.
So should you diversify with ETFs? Nearly 90% of financial planners believe so.
Can you now use ETFs to diversify with crypto? Absolutely. However, don’t confuse diversification with overexposure. The former is a defensive strategy while the latter can ruin your day month year life.