Crypto for Advisors: The Evolution of Crypto and TradFi

Last week saw significant regulatory advances in the United States. The House of Representatives endorsed a new cryptocurrency bill, while the Securities and Exchange Commission (SEC) granted approval for a step forward in listing a spot bitcoin ETF.

As a financial analyst, I delve into Bitcoin’s intriguing journey since its inception in today’s newsletter. I explore its development as a digital currency and assess its performance as a valuable investment asset. Furthermore, I shed light on how Bitcoin has been integrated into the conventional finance sector.

At “Ask an Expert,” Kevin Tam from Raymond James discusses the Securities and Exchange Commission (SEC) 13F filings, revealing insights into which institutions hold stakes in Bitcoin Exchange-Traded Funds (ETFs).

And as always, there’s more information in the Keep Reading section.

– Sarah Morton

As a financial analyst, I frequently explore the latest trends and insights in the digital asset space. One resource I find particularly valuable is CoinDesk’s weekly newsletter, “Crypto for Advisors.” This informative publication is tailored specifically to financial advisors, providing clear and concise explanations of digital assets and their relevance to our industry. To stay informed and subscribe, simply click here every Thursday.

Digital Assets Meet Trad-fi, Ironic – Isn’t It?

For fifteen years, Bitcoin’s source code has been publicly accessible online. The initial intention was to enable peer-to-peer value exchange without the need for an intermediary’s approval. Over the past decade and a half, numerous other distributed database networks have emerged (e.g., Ethereum, Solana). Each new platform introduces unique features and potential applications.

Through our investigation, we’ve uncovered several intriguing findings that have remarkably remained consistent despite the common perception of digital assets as a swiftly evolving and dynamic domain.

As a crypto investor, I’ve come across some intriguing statistical similarities among various digital assets, going beyond just Bitcoin. These findings suggest that a passive investment strategy could be effective for these assets as well. In simpler terms, it means that an investor doesn’t necessarily need to have an active stance on the asset but can consider holding it as part of a diversified portfolio.

The aggregate value of all liquid assets amounts to approximately $197 trillion. Cryptocurrencies, with a market capitalization of around $2.4 trillion, make up roughly 1.2% of this total. This market size is comparable to that of high-yield bonds, inflation-linked securities, or the emerging markets small cap sector.

From a purely investment perspective, the unique features of cryptocurrencies and digital assets make them valuable additions to a diversified portfolio. Their high growth potential, ability to diversify risks, and convenient investment options through authorized investment channels are making it increasingly challenging for investors to overlook this space. By allocating a small percentage (1-2%) of their portfolio to these assets, investors can maintain a neutral position while capitalizing on potential gains and minimizing risk exposure to just 1%.

Doing this task is now more accessible than before. In 2024, there has been a surge in the introduction of global Bitcoin and other digital asset exchange-traded funds (ETFs). The US has witnessed record-breaking inflows for its spot Bitcoin ETFs. Hong Kong has given the green light to listing Bitcoin and Ethereum ETFs, while the London Stock Exchange is following suit, initially catering to professional investors.

As a crypto investor, I can’t help but feel a sense of nostalgia as I witness the digital asset space converging with traditional finance. However, this is a natural progression for any emerging industry as it grows and matures. The irony lies in the fact that one of the safest, most accessible, and transparent ways to gain exposure to this new asset class is through Exchange-Traded Funds (ETFs) or Exchange-Traded Products (ETPs).

– Benjamin Dean, director, Digital Assets Strategy, WisdomTree

Ask an Expert

Q: What do the SEC 13-F filings tell us about bitcoin or ETF adoption?

As a financial analyst, I would explain it this way: Institutions managing over $100 million in assets, including Canada’s five largest banks – TD Bank, RBC, BMO, CIBC, and Scotiabank – have disclosed holding Bitcoin ETF shares through their 13F filings. The combined exposure to this digital asset surpasses $19.9 million.

Q: Why do these ETFs matter, what does this mean?

As a securities analysis expert, I can tell you that in early 2024, the U.S. Securities and Exchange Commission gave its approval for a bitcoin spot ETF to begin trading on various exchanges. This decision led to an influx of new participants and significantly increased liquidity within the crypto market.

As a crypto investor, I can now effortlessly buy securities that provide me with the same value as owning actual Bitcoin, without having to personally hold the digital currency in my wallet. Institutional and retail investors share this convenience.

As a researcher studying investment products related to Bitcoin, I would describe it this way: When you invest in a spot Bitcoin Exchange Traded Fund (ETF), your funds are actually linked to real Bitcoin holdings kept in secure custody at regulated institutions. This setup spares individual investors from the hassle of finding a reliable custodian and managing self-custody, potentially shielding them from potential risks like hacking or loss due to insufficient security measures on the part of the custodians.

Q: Owning bitcoin is risky, so why is the bank integrating this?

Institutional investors are increasingly embracing bitcoin as a valid investment option, acquiring it as a means to expand their portfolios and generate profits that shield them from market instability, under the watch of regulatory compliance.

– Kevin Tam, Digital Asset Research Specialist & Senior Branch Compliance Supervisor, Raymond James Ltd.

Keep Reading

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.