Bitcoin may be the king of all cryptocurrencies, but does that make it the best? Regarding performance, you can certainly do better.
So far this year dogecoin has soared 5,894%, cardano has ripped higher at 1,564% and maker is ahead by 530%. By comparison, bitcoin has climbed "just" 76.8%. Although some smaller obscure cryptocurrencies have experienced better year-to-date returns, they still have a long way to go before catching King Bitcoin.
With a $972 billion market cap, bitcoin is the largest cryptocurrency by sheer market size. The next largest cryptos—ethereum ($461 million), cardano ($91 million) and binance coin ($83 million)—are still far behind.
Despite its established presence, bitcoin still hasn’t shaken its knack for extreme price fluctuations.
After hitting a peak of $63,086 in mid-April, the ecstasy didn’t last long. By mid-July, bitcoin lost half of its value, tumbling to $30,191. Since its summer doldrums, bitcoin recaptured the $50,000 level with another mind-boggling move.
A 2008 white paper by Satoshi Nakamoto (the anonymous promoter of bitcoin) described it as a “peer-to-peer electronic cash system.” The technology behind bitcoin and other cryptocurrencies is the blockchain, a transparent, widely distributed ledger seeking to reshape business transactions.
For financial advisors looking to add cryptocurrency exposure in client portfolios, some exposure is probably better than none.
"Crypto can be a very valuable alternative asset in portfolios,” said Matthew Hougan, chief investment officer at Bitwise Asset Management. “It has high potential returns, low correlations to other assets and liquidity. It's a magic trio that's hard to find in the same asset class.”
Hougan’s unbridled enthusiasm stems from the fact that Bitwise, a San Francisco-based asset manager, has a lineup of nine crypto-linked products including the Bitwise 10 Crypto Index Fund (BITW).
BITW is a $1.1 billion product that holds a basket comprising the top 10 cryptocurrencies by market size. The fund charges a 2.5% annual expense ratio, which is high relative to traditional bond and equity ETFs, but common among its peers.
Other advisors prefer a concentrated approach to crypto investing. David Kreinces, chief investment officer at ETF Portfolio Management, a Westlake Village, Calif.-based asset manager, said the Grayscale Ethereum Trust (ETHE) is currently his firm’s largest crypto holding, followed by the Grayscale Bitcoin Trust (GBTC). During the past year, ETHE has outrun GBTC with a 540.52% gain versus a 238.85% jump in the latter.
In February, the Purpose Bitcoin ETF (BTCC) launched on the Toronto Stock Exchange as the first true bitcoin ETF. South of the 49th parallel, investors are still playing a waiting game for the Securities and Exchange Commission to approve the first U.S.-listed pure-play crypto ETF.
A slew of 1940 Act bitcoin futures ETF products have been registered with the SEC, according to James Seyffart, a Bloomberg ETF analyst. Investment firms such as Galaxy Digital, Teucrium and VanEck are among those with products in the queue. Based on the standard 75-day launch window, Seyffart forecasts that some of these products could begin trading in October.
Financial advisors who aren’t keen about investing directly in cryptos should look at equity-linked ETFs tied to the industry. That includes the Amplify Transformational Data Sharing ETF (BLOK), an actively managed fund that allocates at least 80% of its assets in companies that use or develop blockchain technology. BLOK has outpaced single bitcoin trusts like GBTC this year with a 50.3% gain versus 27.3% for GBTC. BLOK has $1.3 billion under management and charges an annual fee of 0.71%.
This year’s fourth quarter is poised for the launch of a new generation of ETFs tied to bitcoin and ethereum futures prices, which means there should be more investment opportunities in the emerging crypto marketplace.
Ron DeLegge is founder and chief portfolio strategist at ETFguide, and is the author of "Habits Of The Investing Greats."