During VettaFi’s Exchange conference in March, market experts from around the globe gathered to discuss the latest strategies and portfolio approaches. One such expert was Samir Kerbage, CIO of Hashdex. He sat down with the VettaFi team to discuss the Hashdex Nasdaq Crypto Index U.S. ETF (NCIQ), use cases for crypto exposure, and more.
Investment Case for Crypto
Nicholas Wodeshick: So far, this year has proven to be a relatively difficult one for the cryptomarket. That said, do you still think there’s a good use case for building crypto exposure at this moment?
Samir Kerbage: Definitely. I believe crypto is a generational opportunity. We’re seeing this as a new asset class, and a new emerging technology that is just getting started, just like with the internet in the ’90s? It’s still very early. Of course, a lot of things have happened for crypto. But still, when you look at the space from a long-term investor’s perspective, as strategic asset allocation, we’re still very early.
Of course, there are a lot of uncertainties. We’ve seen risk assets taking a hit right now because of this uncertainty. The administration is setting new rules and changing the game. Markets don’t like uncertainty. So that’s why all the asset classes are in a waiting mode and risk-off movement. But yes, we think it’s a great moment for investors to build crypto exposure.
Hashdex’s Indexed Approach
Wodeshick: Last month, Hashdex released an extremely interesting fund, the Hashdex Nasdaq Crypto Index US ETF, ticker NCIQ. Now, this is the first multi-asset spot crypto ETF to be made available to U.S. investors, correct? Could you walk us through the fund’s strategy and why investors may want to consider picking up both bitcoin and ether in a single ticker?
Kerbage: The Nasdaq Crypto Index is a flagship product around the world. We have a presence in multiple countries, and this is the largest crypto index ETF globally. Everywhere we operate, including Europe and Latin America, this is the type of product that offers diversified exposure to the asset class.
So, think about it from the perspective of a financial advisor or professional investor when they’re looking into the crypto space. Normally, what we see are very small allocations, ranging from 1% to 5%. They’re looking for investment solutions that would help them get exposure to cryptocurrencies.
We see this in countries where there are multiple crypto ETFs, where there are already products like bitcoin, ether, Solana, XRP, and 10-20 other crypto ETFs. The big challenge is, which ETF should I pick? Which asset should I invest in? And that’s the problem we try to solve with an index.
What we’re trying to do is to create the Nasdaq-100 for crypto. Instead of picking individual stocks and trying to do your own analysis for each of those crypto assets, we choose by the market. The only question you need to answer is, is crypto going to be better in the future? If you think crypto is going to be better in the future than it is now, just buy the market. It can be too risky to pick individual crypto assets, since it’s an emerging asset class.
Just like the internet in the ’90s, the only thing that was relevant at first was email. People thought the internet was all about email, and when we look 20 years ahead, we still use email, but it’s not the application that created the most value for our society. That’s the same way we look at bitcoin. We love bitcoin. We think there’s a huge investment opportunity for gitcoin, but when we look at the crypto ecosystem overall, bitcoin is just one very specific use case — an emerging digital store of value.
There’s a lot of other applications you can run on a blockchain. And when you’re investing only in bitcoin, you’re missing all those other opportunities. That’s what this product is all about. We’ve built this with Nasdaq to bring an evolutive index. This means the index will evolve as the market evolves and as the regulatory environment shifts.
Outside of the U.S., the index has nine assets. It started with about four or five assets, and now has nine market-cap-weighted assets. Here in the United States, we brought in the U.S. version of the index. It has all the eligibility criteria of the Nasdaq Crypto Index.
There’s a very strong governance on top of this. But it has one more rule, which says that the asset must be eligible as an ETF here in the U.S. So right now, this index only has bitcoin and ether. But over time, as the market and regulatory environment evolves, we believe we’ll be able to incorporate new assets. With this new SEC, that’s hopefully going to be happening sooner rather than later.
Tapping Into New Crypto Approvals
Wodeshick: Interesting. So, when these new crypto products are coming on as ETFs, normally people have to buy into them individually. But with this Hashdex fund, you can just take on NCIQ and gain rolling exposure when these new assets come online?
Kerbage: Exactly. Think about a traditional investor’s perspective, too. You don’t have to worry about when the SEC is going to approve each asset, and then have to go out there and buy it. You get one product that’s evolutive. We obviously can’t predict what happens next. Perhaps there are 10 or 20 assets in the future that the SEC will allow as ETFs. If that happens, the index will add in the new assets. You don’t need to rebalance your portfolio when that happens, as long as you have this fund.
Examining Crypto as an Alternative Asset
Wodeshick: We’re definitely seeing more interest from advisors and investors about cryptocurrency. That said, there’s still a good amount of trepidation regarding why one should add bitcoin to their portfolio, let alone ether. What do you say to people who are still on the fence for crypto as a whole?
Kerbage: For those on the fence about crypto, there are two things I’d like to bring to their attention. First is that the 60/40 portfolio is not working anymore? It’s a big challenge for everyone to build a portfolio that’s actually diversified and can deliver returns for investors. We’ve seen huge demand for alternatives. With crypto, here’s an alternative asset class that’s mostly uncorrelated with the other assets, and extremely liquid. Especially now with the ETFs, crypto is very easy to access. And it can deliver very interesting returns over the long run. It’s hard to not have it in your portfolio.
For any client that has an allocation to equities, you should consider a small allocation to crypto as well. Of course, the difference between the poison and the medicine is the size of the dose, right? If you need to calibrate how much you’re allocating, it makes sense to consider a small location, even just for diversification.
When some advisors decide to invest in crypto, they might solely allocate assets to bitcoin. But if you do that, you’re losing all the optionality that the crypto ecosystem can bring to you. There’s $1 trillion in market capitalization in other assets outside of bitcoin. There is both a lot of capital, and a lot of people working on this. Many entrepreneurs are trying to build out assets beyond bitcoin. Are these efforts going to lead anywhere? Maybe.
And if you think there is a chance that this is going anywhere, you need to invest beyond bitcoin. Then the question is, what should I invest in? If you’re doing a small allocation, the best path is just go diversified in an index. Diversify passively in an index, just like when you’re investing in emerging markets or China.
Branching Out From Bitcoin
Wodeshick: So, you see ether as almost an alternative to an alternative. By taking on ether or other assets, investors can access advantages in the cryptomarket that stretch beyond bitcoin.
Kerbage: Again, with the internet metaphor, you can look at it through the lens of email in the ’90s. Back then, you might decide to invest in only email, or only AOL or Yahoo. If you do that, you’re leaving out Google, Amazon, Uber, and all those other great things that the internet brought to us. For such an emerging technology in its very early stages, it’s actually too risky to be concentrated in just bitcoin.
For more news, information, and strategy, visit the Crypto Channel.
