Thursday, January 11, 2024 – Eleven spot Bitcoin ETFs have been approved by the US Securities and Exchange Commission (SEC) and start trading today.
The greenlight for the first ever spot crypto ETFs in the US throws open the doors for institutional and retail investors. It provides a regulated and easy way to gain exposure to the nascent digital asset class.
In the light of this earthquake-like inflection point for crypto, it begs the question, which are the best cryptocurrencies to hold in a traditional investment portfolio?
Bitcoin is of course the oldest and most well-known of cryptocurrencies, but its arrival in the mainstream is sure to be followed by other crypto, so a widening vista of choice awaits the savvy investor.
The Ethereum price has jumped nearly 15% in the past 24 hours as market participants bet it will be the next crypto to be approved for an ETF wrapper. Ripple’s XRP token is up 6%.
So where should the TradFi and crypto natives start their investment journey in this exciting new landscape? We have all the answers.
What crypto investors need to consider from a portfolio asset allocation perspective
Traditional investment portfolios come in many different shapes and sizes, but all should be constructed taking into account an asset allocation perspective. The main determinant of investment returns is the choice of asset to allocate to, not the selections made within each asset class.
This means first determining the weighting to be given to each asset class. A typical portfolio will allocate from among the following asset classes:
stocks
bonds (fixed income)
Commodities
real estate
cash
alternative investments
Portfolio construction and risk profile from a crypto perspective
There are two ways of accessing asset classes – buying them directly or holding them in a wrapper like an exchange-traded fund, a mutual fund or an investment trust.
For crypto investors, holding assets directly has been the only or main way to include them in an investment portfolio, depending on an individual or institution’s jurisdiction.
Collective investment vehicles are a popular way of accessing financial assets because it is cheaper than, for instance, buying individual shares, and it bypasses the time and effort needed to manage the holdings yourself.
There are thousands of funds for investors to choose from and we expect bitcoin to start featuring in more of them via funds of funds – in other words, funds that hold a basket of funds.
The exact contours of the portfolio you want to build will depend on your risk profile but there are three main types of traditional investment portfolio:
Growth
Value
Income
Balanced
Growth portfolios place the emphasis on targeting capital appreciation, so will involve more risk, investments in early-stage companies, and sectors such as technology.
Value portfolios are of course also seeking capital appreciation but will tend to focus on established companies with strong market positions, brands and revenues but are, for whatever reason, undervalued by the market.
Income portfolios cross over with value portfolios in as far as they include companies that pay dividends. Growth companies tend to put all their revenues and profits back into the business while established companies with strong markets are able to return value to shareholders by paying out a share of profits in the form of dividends.
Oil companies, for example, are big payers of dividends. Beyond stocks, bonds are the predominant way in which investors seek to access income for minimum risk and will be a major component of an income portfolio.
Balanced portfolios include elements of capital appreciation and income, as well as perhaps other asset classes such as commodities, forex and real estate. Often referred to as 60/40 portfolios, and once seen as the archetypal traditional investment portfolio, allocates 60% to stocks and 40% to bonds.
In the new era of investment management that welcomes crypto into the fold, it is possible to include digital assets in all of the portfolios described above, although many traditionalist naysayers will continue to take issue with crypto being treated as a legitimate asset class at all.
Taking risk tolerance into account, crypto can be considered as a portfolio constituent in the following ways:
Growth – think of cryptocurrencies as early-stage tech stocks
Value – large capitalization digital assets that have active and well-established networks and brand power, DeFi protocols that generate yields, utility tokens in proven revenue-generating markets such as gaming and gambling
Income – staking-centric coins that distribute rewards to token holders who deposit a portion of their holdings into a staking contract. The Ethereum network’s native ETH token, for example, pays a yield to staking validators – an address must hold at least 32 ETH to verify transactions on its blockchain.
Balanced – crypto has strong diversifying qualities because it is not correlated with other asset classes. However, the volatility risks associated with holding crypto would need to be balanced by, say, holding a large allocation to money market funds, high-grade corporate bonds and a sovereign bond fund with a mix of durations and denominations.
Alternative investments – this is where most of the crypto allocation will find itself. Typically 1 to 5% of a portfolio would be given over to speculative alternative investments. 1% of the trillions of dollars available for investment globally will be transformative for crypto assets and the returns possibly in this asset class.
Bitcoin, and crypto more widely, can generate strong outperformance for traditional investment portfolios. Indeed, the era of ‘traditional’ investment portfolios is about to recede if the impact of Bitcoin ETFs is anything like as impactful as the launch of the first Gold ETFs.
Gold was the first asset to be given the ETF treatment, providing retail investors with a cheap way of accessing the gold bullion market without having to worry about custody and liquidity.
How to access crypto through collective investment vehicles like ETFs
High-net-worth investors already have access to the Grayscale family of investment trusts, but these are closed-ended vehicles that the asset manager will be looking to convert into ETFs.
Elsewhere, notably in Europe, there are already crypto exchange-traded funds and other exchange-traded products such as debt securities known as Exchange Traded Notes.
In Asia there are moves afoot to introduce crypto ETFs, where Hong Kong is leading the charge.
There are laggards also that should not be dismissed. In the UK retail investors are banned from owning exchange-traded crypto products of any kind, be they trusts, ETNs or ETFs. This stands at odds with the government’s stated aim of turning the UK into a global hub for crypto.
The contradiction may be resolved by the Financial Conduct Authority changing its tune as its current regulatory approach in effect is forcing investors onto unregulated exchanges to access the digital asset class – the opposite effect of what it intends.
Crypto could become the go-to asset for the alternative investment allocation of traditional investment portfolios
Alternative investments are where crypto fits in. In addition to crypto, alternative investments encompass a host of investment categories, often coming with a speculative bent.
They are defined by what they are not – that’s to say they are categories of investments that don’t easily fit into the main asset classes.
Alternative investment constituents can include anything from collectibles such as stamps and classic automobiles to art and whiskey. These days the main alts are areas such as hedge funds and private equity, as well as asset classes such as commodities and real estate.
Going forward we can also expect crypto to be allocated to portfolios by money managers and financial advisors as part of the alternative investment constituency.
Alternative investments are considered the riskier end of the investment spectrum, so an investor’s risk tolerance will guide their thinking on whether to include alternative investments and which ones.
Alternatives are also harder to value than other asset classes for a variety of reasons as they will include collectibles such as stamps, art, etc mentioned above. Cryptocurrencies are also hard to value, not only because they are a speculative asset class but also because they are a new technology.
This is a useful way of thinking of crypto – they are much more than ‘currencies’ and in fact thinking of them primarily as currencies misses the point. Decentralized networks can be applied to pretty much all industries and, arguably, the fight to disrupt legacy companies has only just begun.
For sure, the disruptive impact of crypto has been at its greatest in the financial realm, but a glance at the categories in which the 12,000 listed crypto on data site CoinGecko are divided, provides an indication of the breadth of applications for peer-to-peer technology.
In a nutshell, blockchain brings the consumer closer to the service or product by cutting out disintermediating layers that add costs and hinder efficiency.
Why the spot Bitcoin ETF fees price war is heating up
Not commonly appreciated in the discussions framing the possible advent of a spot Bitcoin ETF is the fact that asset management is facing severe business model challenges which can be summed up in the phrase ‘fee compression’.
Passive investment vehicles like ETFs and index funds are eating asset managers’ lunch, which was once paid for with the fat fees earned from active fund management. One of the few growing areas of the industry that could grow to generate comparable revenues is alternative investments.
Crypto becomes even more attractive to asset managers against this background. But before the profits from offering crypto collective investment vehicles like ETFs can ripple up, there is first of all the fight for market share.
A fee war has broken out even before the first spot Bitcoin ETFs were launched. Bitwise has led the way by reducing its fee to 20 basis points after BlackRock came in with what was initially a market-beating 0.30%. BlackRock in response has reduced its fee to 0.20% for the first $5 billion of asset inflows seen in the first 12 months following inception.
As analysts point out to Bloomberg, it is as if several years of a price war have been fought out in a period of weeks and days.
It is also worth mentioning that one of the biggest names in ETFs and passives – Vanguard – has not joined the Bitcoin ETF race, so not everyone in the industry thinks that crypto funds is an opportunity not to be passed up.
5 Best cryptocurrencies to hold in a traditional investment portfolio – what the experts say
We asked a number of crypto experts from various vantage points in the industry to provide their picks for the 5 best cryptocurrencies for a traditional investment portfolio. Below we run through their answers.
Sergey Klinkov, Managing Director for Strategy at Finery Markets
With the approval of ETFs, there is hope for renewed excitement and support for digital assets. This approval could also change how people perceive crypto, which has had a rough year with events such as the FTX collapse and a heavy focus on making quick profits.
While the market has already priced in the approval of a BTC ETF, there has been some hesitation in recent days resulting in increased volatility. However, in the long run, approval is inevitable.
The main question now is which other coins will be the next to be included in ETFs after BTC, with Ethereum being the most likely choice.
As for the others, they may be large-cap infrastructure layer one coins like Solana, Cardano, or Avalanche. However, I wouldn’t anticipate any additional crypto coins being approved for ETFs in the near future. Typically, financial authorities take time to assess the impact of their decisions and the response from the market.
David Kemmerer, CEO, CoinLedger, coinledger.io
Though this approval may indicate that the crypto market has “arrived,” that doesn’t mean that it will eliminate the risk of investing in crypto. I think a lot of people will still be understandably hesitant, and especially for newer or less risky investors, it will be wise to prioritize investing in safer, more reliable cryptos.
Ethereum, for example. It’s second only to Bitcoin at this point, and it’s proven to be a decent long-term investment. While it’s had times of volatility (virtually all cryptos have), it remains pretty stable in comparison and has a great future outlook.
James Lawrence, CEO and founder of NFTY labs
For a balanced 2024 portfolio, my recommended allocations, focusing on both established and emergent digital assets and Layer1s, are as follows:
Bitcoin (BTC): 35% – The cornerstone of the market, offering stability and liquidity.
Ethereum (ETH): 30% – The leader in decentralized applications and smart contract innovation.
Solana (SOL): 12% – A Layer1 known for fast transactions and efficiency in DeFi and Web3, a growing ecosystem.
Cosmos (ATOM): 12% – Critical for its interoperability across its ecosystem’ blockchains, enhancing connectivity in a world of blockchains.
Sei Network: 11% – A promising and evolving Layer 1 blockchain, especially in digital asset trading / DeFi arena.
This allocation strategy aims to balance market stability with potential growth in emerging networks, catering to active and passive investors interested in the current landscape and future advancements in the crypto space for this year.
Daron Bennett, CEO and co-founder OnGo
Top 5 cryptos for traditional investment:
Bitcoin (BTC): The gold standard of crypto, leading in market cap and popularity. Its potential inclusion in an ETF makes it a must-have for serious investors.
Ethereum (ETH): The backbone of the DeFi and NFT ecosystems. The Ethereum 2.0 upgrade, transitioning to a more efficient proof-of-stake model, significantly enhances its investment appeal.
Binance Coin (BNB): is integral to the Binance Exchange and Binance Smart Chain, offering utility in transactions and fees. Its burn mechanism adds a layer of value-growth potential.
Cardano (ADA): Notable for its research-driven and eco-friendly approach. It is poised for long-term growth, especially as its platform develops further for dApps and smart contracts.
Solana (SOL): stands out for its exceptional transaction speed and low cost, addressing scalability issues. Its innovative technology positions it as a strong contender in the market.
In conclusion, these five cryptos represent a blend of stability, innovation, and growth potential, making them strong candidates for inclusion in diversified investment portfolios. However, always balance these choices with an understanding of the inherent volatility and risks of the crypto market.
Michael Schmied, lead financial consultant at Kredite Schweiz, https://krediteschweiz.ch/en/
Here are five cryptocurrencies that could be considered for inclusion in a traditional portfolio, each catering to different investor profiles and objectives:
Bitcoin (BTC)
Profile: Ideal for conservative crypto investors seeking exposure to the most established cryptocurrency.
Rationale: Bitcoin is often viewed as ‘digital gold’ and can act as a hedge against inflation. Its market leadership and widespread recognition make it a relatively safer crypto investment.
Ethereum (ETH)
Profile: Suitable for investors looking for growth with a moderate risk profile.
Rationale: Ethereum’s widespread use in decentralized applications and smart contracts positions it well for long-term growth. Its upcoming transition to Ethereum 2.0, which aims to improve scalability and energy efficiency, could further enhance its investment appeal.
Binance Coin (BNB)
Profile: For investors interested in a utility token with a strong ecosystem.
Rationale: BNB powers the Binance ecosystem, one of the largest cryptocurrency exchanges globally. Its utility in a wide range of applications, including transaction fee reductions on the Binance platform, gives it a practical value beyond speculative trading.
Chainlink (LINK)
Profile: Investors looking to diversify into ‘oracle’ networks that enable blockchain interoperability.
Rationale: Chainlink is a leading oracle network that connects smart contracts with real-world data. Its unique role in the blockchain ecosystem could offer diversified exposure beyond the standard crypto assets.
Cardano (ADA)
Profile: For those interested in a research-driven, sustainable blockchain platform.
Rationale: Cardano distinguishes itself through a strong focus on sustainability and scalability. Its peer-reviewed research approach and commitment to developing countries could appeal to socially conscious investors.
Key Considerations
a) Diversification – As with any investment, diversification is crucial. These cryptocurrencies offer different value propositions and risk profiles.
b) Volatility – Crypto investments can be highly volatile. It’s important to allocate only a portion of your portfolio to these assets, based on your risk tolerance.
c) Regulatory Environment – Keep abreast of the evolving regulatory landscape, as it can significantly impact the crypto market.
In my consultations, I emphasize that while cryptocurrencies offer exciting opportunities, they should be approached with caution and a clear understanding of their unique characteristics and risks. A balanced portfolio approach, combined with ongoing market analysis, is essential for integrating crypto investments into traditional portfolios.
Eugene Musienko, CEO, Merehead, merehead.com
The approval of a spot crypto ETF will open the door for institutional and retail investors. This is a huge opportunity for the crypto market. But among the many coins, the question will arise, which one is best to invest in? It doesn’t matter which portfolio you choose – conservative, balanced, and high-risk, in any case, first of all, you need to form a basis with bitcoin and Ethereum.
Bitcoin (BTC) hedges risks and minimizes your loss if it falls. On January 3, 2024, bitcoin lost 4.7% and XRP 7.7% at one point – this is why Bitcoin should be in your portfolio and occupy between 15% and 40% of the total.
Ethereum (ETH) is first and foremost a powerful technology. A huge number of decentralized applications and smart contracts are built on the basis of the ERC-20 protocol. Tron (TRX) and BNB use an Ethereum fork. This speaks to the practical application of cryptocurrency in the industry and its value to the community. High capitalization and value makes ETH a desirable asset in every crypto portfolio and should occupy from 10% to 35% of the total.
Bitcoin and Ethereum tend to be in every type of portfolio for most investors. Although it is worth considering separately in your portfolio coins that can provide a stable income, but do not have such high volatility in the market, with a relatively high capitalization. Below you can see the portfolio of one of the leading cryptocurrency investment funds, Andreessen Horowitz (a16z). This gives a clear understanding of where large funds invest, but you definitely shouldn’t blindly follow their strategy.
Solana (SOL) is a great investment tool. The blockchain protocol allows the development of DeFi, Web3, NFT applications and games. Moreover, in 2023, the company released its Saga smartphone, which became very popular. The company even had to reject some pre-orders due to a lack of capacity to meet the offer. Definitely, Solana is worth considering to include in your portfolio.
Ripple (XRP) is considered a top coin, one of the few that has consistently been in the TOP 10 by capitalization for many years. A distinctive characteristic of cryptocurrency is the speed of transactions (up to 1500 transactions/sec) and its centralization. Main application in large banking industry. But it’s worth paying attention to the complicated history of Ripple’s interaction with the SEC. In 2020, the SEC filed a lawsuit alleging the sale of unregistered securities and didn’t end until 2023.
Avalanche (AVAX) is a promising crypto project for the development of decentralized finance (DeFi). Blockchain infrastructure allows developers to quickly create subnets and deploy their applications. The coin is characterized by high volatility, but at the same time it has growth prospects in the future. This is primarily due to the popularity of DeFi applications.
5 Small-cap crypto to consider for alternative investments in a traditional investment portfolio
Ultra small-cap crypto are of course a riskier proposition than their larger cap peers. Nevertheless, just as in the traditional markets some of the best returns are to be found among early-stage companies in the private markets, similarly in crypto it is the coins that have not yet come to the market that can provide outsized performance alpha.
New coins that are still bubbling under are also worth considering, but only on the basis of their unique selling points and with the expectation that you could lose all of your capital.
The coins below could be sprinkled into the selections made by the experts above which concentrate on the large-cap altcoins end of the market, where liquidity is greatest and there is relative safety because of their proven market fit and current strong market position.
1. Bitcoin Minetrix ($BTCMTX) – for tokenized exposure to bitcoin mining rewards
Bitcoin Minetrix is an Ethereum-based tokenized bitcoin cloud-mining project. Currently in presale, the project is providing a unique value proposition by being the first bitcoin cloud mining product that activates stake-to-mine, removing the downside of fraud from the equation and putting the token holder in the driving seat.
The project provides access to a claim on a portion of bitcoin mining rewards in proportion to the cloud credits secured through the staking process, all controlled by smart contracts and a frontend state-of-the-art dashboard, available on desktop and mobile.
2. Sponge (SPONGE V2) – bridging to gaming-focused SPONGE V2, up 1,000% in past month
Sponge launched a few months ago and returned 100x gains for its early presale investors. Now the meme coin is transitioning to a gaming-focused SPONGE V2 token. Buy and stake the V1 token into the new V2 contract and wait for the team to flick the switch to bridge the tokens from V1 to V2 for another 100x opportunity.
The current APY reward is 357%. The coin recently retested its all-time highs on the back of the bridging news, so imagine what will happen when the bridge activates. Justin Sun, the founder of TRON, is a whale holder of SPONGE – don’t let him have all the fun (and investment upside) to himself.
3. Meme Kombat ($MK) – the mother of all meme coins takes battle arena gaming to the next level
Meme Kombat brings meme characters together in a battling Arena where players can wager on the outcome of the bouts. Whether you are into Pepe or Dogecoin, Sponge or Shiba Inu, they are all represented here.
Combining as it does the three hottest crypto sectors in the industry – meme coins, gaming and gambling, there’s a lot to like about this project. It is still in presale so you can get in on the ground floor to maximize its risk-reward potential.
4. Bitcoin ETF Token ($BTCETF) – the cheapest and most profitable way to ride the bitcoin ETF investment story
Bitcoin ETF Token has been designed with the approval of a bitcoin ETF in mind. The various milestones such as approval, the start of trading, AUM, trading volume, and more, are all used as trigger points for its innovative burn mechanism and to reduce the transaction tax at various stages of the spot Bitcoin ETF lifecycle.
If you want to benefit from exposure to the biggest investment theme in crypto, then this could be a cheap entry point for what could be at least 10x gains.
5. TG.Casino ($TGC) – GameFi is booming and this coin is the top licensed casino on the Telegram app, new Rollbit
Gambling is booming in crypto. The sector plays to the strengths of crypto in its ability to deliver a trustless network where transparency and security are built into blockchain technology. However, TG.Casino is a Telegram-first offering that leverages the easy-to-access power of the bots that run on the Telegram messaging app platform.
Telegram is growing by leaps and bounds and TG.Casino is the No.1 licensed gambling platform on the app. Its ecosystem features a buyback mechanism that blows competitors such as Rollbit out of the park. Another 100x opportunity, just out of presale.
Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
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