Crypto for Advisors: Bitcoin’s Price

Later, Leo Mindyuk shares expert knowledge on advisors’ perspectives and how they assist their clients within the Ask an Expert section.

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Bitcoin’s Price Actions

It has been an action-packed 2024 for bitcoin and other digital assets.

For financial advisors, this can mean one of two things:

In summary, during the October 2023 surge, bitcoin attracted broader interest due to the impending approval and launch of “spot” ETFs. At that time, bitcoin’s value was below $30,000. The launch of 11 such ETFs on January 11 set a record in the digital asset world.

Bitcoin’s upward trend persisted until mid-March, reaching a record peak of over $73,000. This surge was not limited to Bitcoin alone; it extended to significant digital assets as well. By March 13th, Bitcoin had appreciated by 72% year-to-date, Ether by 75%, and the CoinDesk 20 Index saw a growth of 58%.

In my analysis, as ETF inflows found a steady pace – with bitcoin ETFs currently managing roughly $60 billion in assets – it became clear that other influential factors started shaping digital asset prices. Notably, the Federal Reserve’s monetary policy, the approaching U.S. election, and its potential impact on crypto regulation emerged as significant drivers. Additionally, addressing some longstanding issues within the cryptocurrency sphere to bring resolution to past challenges – often referred to as “crypto-specific housekeeping” – also played a role in influencing bitcoin’s performance as the leading digital asset.

The combined elements led to a general apprehension regarding digital assets, with bitcoin drawing specific attention. As a form of value storage, bitcoin is susceptible to broad economic factors like inflation and anticipated changes in interest rates. Our preferred indicator is the prediction for future adjusted interest rates: To whatever extent the market assumes that future inflation will exceed future adjusted interest rates, bitcoin becomes more appealing.

In contrast to many other nations and regions, the regulatory landscape for Bitcoin and digital currencies in the United States has been relatively restrictive. There’s a lot of speculation about how future U.S. administrations might approach crypto regulation, with some questioning whether the U.S. will be able to keep pace with global developments in this area.

In simpler terms, it was predicted that a significant amount of Bitcoin might enter the market as a one-time release. The resolution of the Mt. Gox Bitcoin exchange issue from a decade ago, along with the sale of seized Bitcoins by regulatory bodies in the U.S. and Germany, initially caused unease among some buyers. However, by Q3, most of these apprehensions were addressed.

For six months after Bitcoin reached its record high in March, it dipped and other assets performed poorly. However, this pessimistic trend significantly changed on September 18 when the Federal Open Market Committee (FOMC) lowered interest rates by 0.5%. This move led to an increase in the price of Bitcoin, but more encouraging was the surge in the wider cryptocurrency market. The CoinDesk 20 index even outperformed Bitcoin by 4% during the fortnight following the Fed’s rate cut.

As a crypto investor, I’m closely monitoring various economic indicators leading up to the U.S. election, including the Fed’s potential pace of monetary easing. Additionally, geopolitical events in the Middle East could trigger market volatility. Consequently, I’ll be attentive to how these factors influence Bitcoin’s price and the overall crypto market’s performance.

Over time, these assets are widely viewed as the key players shaping the future of finance. Among them, Bitcoin stands out as the most prominent, oldest, and, in many aspects, straightforward cryptocurrency. Primarily designed for transfer from one digital address to another, it boasts a limited supply, an established record of security spanning 15 years, and a robust network. It serves as a store of value, relatively new and underutilized yet resilient enough to withstand challenges from the global financial sphere. For those embarking on investment education and portfolio planning, it offers a solid foundation. Notably, it has consistently outperformed other major asset classes in eight out of the last eleven years.

After Bitcoin, there’s a pressing query among many consultants who aim to avoid delving deeply into cryptocurrencies, yet don’t wish to overlook the substantial growth prospects associated with Web3, smart contracts, DeFi, and other blockchain-related topics.

– Andy Baehr, CFA, head of product, CoinDesk Indices

Ask an Expert

Q. What is the current advisor sentiment towards digital assets?

Experts dealing with digital currencies find themselves in a constantly changing environment as they grapple with the introduction of novel cryptographic goods, regulatory adjustments, and a growing trend towards mainstream acceptance.

The regulatory landscape remains fragmented globally. The U.S. has been slower in implementing cohesive crypto regulations, though efforts to regulate stablecoins and exchanges are underway. Meanwhile, other regions like Asia and the UAE are more progressive, providing clearer regulatory frameworks.

It’s crucial for advisors to keep up-to-date with the latest trends in the rapidly changing digital asset market, given that cryptocurrencies are moving from being a niche investment to becoming a more common option for investors.

Q. Why is it important to understand where advisors stand on digital assets?

As digital assets grow in importance, they’re seen as valuable additions to investment portfolios when it comes to spreading risk and increasing diversity. Cryptocurrencies, specifically, can provide a unique balance compared to traditional investments, potentially lowering overall portfolio risk due to their distinct correlation patterns. Financial advisors are keen on integrating these assets into their strategies, particularly as the digital asset market matures and more institutional products like Bitcoin ETFs come into play. This development opens up broader investment opportunities without the complexities often associated with direct ownership.

Q. How can advisors offer clients protection from the recent volatility?

By emphasizing the long-term benefits of digital assets, advisors can assist clients in keeping their emotions in check during market fluctuations. Historically, markets such as Bitcoin have shown signs of recurring volatility, but investors who have held onto these assets for extended periods have often reaped rewards from price increases. Advisors can guide clients in adhering to a consistent investment approach, placing greater emphasis on long-term profits rather than short-term gambling.

Using these methods, financial advisers can assist clients in capitalizing on the growth prospects of digital assets, all the while reducing the impact of market fluctuations and volatility.

– Leo Mindyuk, CEO, ML Tech

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