Investors should examine the case for and against cryptocurrencies as part of a diversified investment portfolio.
In the recent webcast, Navigating the Bitcoin Boom….or Bust, Paul Kim, CEO and Co-Founder, Simplify Asset Management, noted that cryptocurrencies have exploded as an asset class in the past year.
Cryptocurrencies are decentralized, digital assets stored in a “ledger” in form of a database. They use cryptography to secure transactions, control the creation of “coins,” and verify ownership.
Bitcoin is a type of cryptocurrency that can be sent between users on the peer-to-peer Bitcoin network. Transactions are verified by “nodes” through cryptography publicly stored in a ledger called a “blockchain.” Bitcoins are created through a reward process called “mining”.
Over the past decade, Bitcoin has generated phenomenal returns, demonstrating a return of investment that has been well above other potential inflation hedge assets. Furthermore, despite the wide swings, the asset category’s long-term risk-adjusted returns are also higher than other traditional risk assets like U.S. stocks.
Cryptocurrency markets now exceed $2 trillion in value and make up over 1% of the overall global market portfolio. In addition, research has shown crypto assets are uncorrelated to equity and fixed income markets, making them a compelling part of a portfolio.
There are some challenges with dealing with cryptocurrencies directly. Kim warned of the hurdles in fitting crypto into traditional asset allocation portfolios, potential tax implications, challenges with operation, and rebalancing.
Allocating to crypto assets is difficult since over-the-counter offerings come with a number challenges for investors and advisors. Additionally, managing direct crypto exposure can be time-consuming and difficult, with no ETF on the market providing easy and direct exposure to crypto itself.
Consequently, Michael Green, Chief Strategist, Simplify Asset Management, highlighted the newly launched Simplify U.S. Equity PLUS GBTC ETF (NasdaqGM: SPBC) to help investors gain exposure to Bitcoin. SPBC is one of the first ETFs providing an easy and scalable way to add Bitcoin exposure to portfolios.
The Simplify U.S. Equity PLUS GBTC ETF invests at least 80% of its net assets in U.S. equity securities, along with up to 15% of net assets in Bitcoin via the Grayscale Bitcoin Trust (GBTC).
The ETF offers operational simplicity for investors through its active management of Bitcoin rebalancing. The fund Advisors actively manage the premium/discount dynamics of GBTC through either direct trading in the market or private placement.
Additionally, the ETF wrapper provides attractive transparency, liquidity, and tax treatment – investors will not have to worry about K-1 forms.
Potential use cases for the new ETF include as a portfolio aligner or fiat currency hedge.
Looking ahead, Green underscored the ongoing challenges of the nascent asset class in the digital age, highlighting risks like regulation, support of anti-U.S. regimes or entities, environmental concerns, and security.
Financial advisors who are interested in learning more about bitcoin and cryptocurrencies can watch the webcast here on demand.