Cryptocurrency investors spent much of 2023 waiting for excellent news.
Following the late 2022 collapse of FTX — on the time the world’s largest cryptocurrency exchange — popular digital currency bitcoin traded just north of $16,000 to start out the 12 months, a far cry from the greater than $60,000 it traded for during 2021’s crypto boom.
Over the previous few months, though, things began looking up. Crypto investors became an increasing number of convinced that the SEC would approve a years-long effort from fund firms to bring a spot bitcoin exchange-traded fund to market, a move crypto boosters expected to stoke demand for the favored coin.
By the point news broke on Jan. 10 that 11 recent bitcoin ETFs would begin trading, crypto investors were taking a victory lap, having bid the coin’s price up by 155% in calendar 12 months 2023.
So, what now? Are we off to a different crypto bull market, or have bitcoin enthusiasts gotten ahead of themselves?
“This is certainly an inflection point,” says Brian Vendig, president of MJP Wealth Advisors in Westport, Connecticut.
Here’s what he and other experts say to expect from here.
The brand new wave of bitcoin ETFs makes it easier than ever for investors in additional traditional assets, akin to stocks and bonds, to dip their toes into crypto. As an alternative of getting to open a separate account to purchase crypto — often with high trading fees — investors within the ETFs can hold bitcoin right alongside their other investments of their brokerage accounts.
That is only the start, says Matthew Sigel, head of digital assets research at VanEck, an investment firm that gives one in all the 11 recent funds.
“We expect it was an enormous step forward that can unlock significant demand, given the associated fee savings for the retail buyer and security available to institutional purchasers,” he says.
The brand new ETFs will soon allow advisors who cope with high net price clients and massive money institutions to start out incorporating crypto into their portfolios, he adds.
“They do not have the flexibility to place these bitcoin ETFs into client discretionary portfolios, yet,” Sigel says. “But we will observe several banks and brokers already preparing these models, which we expect to emerge later this 12 months.”
Expect more recent crypto ETFs, too — and in numerous flavors.
“It seems inevitable that we’ll have ETFs tied to ether, as a secondary cryptocurrency for people to take a position in,” says Todd Rosenbluth, head of research at VettaFI. Within the meantime, he says, “the door is now open for a spread of ETFs that include bitcoin in addition to other assets.”
Experts say these may be so simple as portfolios that mix bitcoin exposure with mainstream investments, akin to those within the S&P 500. More complex so-called alternative strategies are prone to emerge as well, akin to funds that use a bitcoin holding to hedge against the performance of other investments.
The rapid rise in bitcoin’s price of late would feel huge for a standard asset, akin to a stock or bond, but isn’t anything to put in writing home about in Cryptoland, says Stephane Ouellete, founder and CEO of FRNT Financial.
“You have seen some speculation are available on the announcement of bitcoin ETFs, but all of the metrics we have a look at to gauge where we’re at out there cycle tell us that we’re to this point away from the FOMO market where everyone and their dog is talking about crypto,” he says.
Measures akin to Google Trends searches for bitcoin and cryptocurrency, financing for crypto firms and investor trading volumes are all relatively muted, he says. In other words, if the crypto market goes to enter into one other bull trading cycle, we’re within the very early days of it.
That does not necessarily mean it is time to pile in, though. Bitcoin experts aren’t buying due to an ETF rollout. Relatively, they imagine in bitcoin’s long-term potential as a store of value and in its place payment system in developing countries. They imagine in a future where blockchain technology develops into a much bigger a part of the U.S. economic ecosystem.
Which will never come to pass. And even for those who imagine in a long-term thesis, remember — cryptocurrencies don’t trade based on underlying fundamentals the way in which that stocks do. Meaning prices move purely based on investor activity.
“It’s all still speculation. That hasn’t modified,” says Vendig.
If you happen to’re occupied with adding crypto to your portfolio, ask yourself what role it may play in getting you to your personal financial goals, he says.
“If an investor can answer that appropriately, then you definately can actually work out the sizing you need to have,” he says. “Do you desire to dip your toe into this asset class? Or is that asset class not even rational for you as an investor?”
If you happen to spend money on crypto, Vendig recommends keeping things small. “I’d say 1% on the more conservative side, and not more than 5% of your total portfolio for those who’re a growth-focused investor.”