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The Bitcoin ETF is Here

January 17, 2024

Well, it finally happened.  On January 10th, the SEC approved the first US licensed ETF to track Bitcoin spot pricing, the world’s largest cryptocurrency.  To give you a brief history, the Winklevoss twins first tried to get this going in 2013 when they filed their first application for a Spot Bitcoin ETF. (Sidenote, if you haven’t seen The Social Network, it’s a good flick.  That’s where I first learned about the Winklevi twins.  The “twins” were both played by Armie Hammer who turned out to be a complete sociopath so if you haven’t seen the movie check it out!)  That application went nowhere with the SEC consistently throwing up roadblocks over the past decade.  Their principal reasoning was that there were not enough safety measures in place to prevent manipulation.  So instead, it was no holds barred and we watched the downfall of various crypto companies, the largest of which was FTX led by Sam Bankman-Fried.  Fast forward to June of last year and BlackRock filed an application for the first time for their own Bitcoin ETF, and wouldn’t you know it, they were approved along with 10 other issuers including Fidelity and VanEck.

I’m just going to answer this up front, no I will not be adding Bitcoin exposure to any of our models at this time.  First, I still don’t see any real correlation or non-correlation to the market unlike traditional commodities such as gold and silver.  Bitcoin has been and still is extremely volatile.  Since opening for trading on the 11th, $IBIT (BlackRock’s iShares Bitcoin ETF) is down over 7%.  Bitcoin hit an all-time high in November 2021 when coins were trading for about $65,000.  As of today, pricing is a little under $43,000 meaning you have a 2 year + return of negative 31%.  In the 4th quarter of 2022, coins were trading in the $16,000 range making the decline as much as 75%.  None of that is an indictment on Bitcoin, it’s simply to illustrate that kind of volatility is not one I feel comfortable with inside your portfolios.

Should you wish to add crypto exposure you now have that ability through conventional means.  IBIT is traded on the NASDAQ for example.  I have no issue with crypto or decentralized finance, in general, if you are a student in that space there is certainly opportunity.  What remains true, per one of the SEC’s own commissioners, is that the SEC and the federal government, dragged this on for over a decade and wasted millions of dollars trying to find a reason to reject these applications.  You can find one of the commissioner’s own words right here saying the very same thing.

 SEC.gov | Out, Damned Spot! Out, I Say![1]: Statement on Omnibus Approval Order for List and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust Units 

Meanwhile, fraud was rampant in the space, retail access was limited and inefficient and we lost ground to housing legitimate crypto talent to countries such as Switzerland, Singapore, Hong Kong and Malta [1].  Yep, we are losing to Malta.  It’s like watching the Men’s national soccer team.  Having said all that, let’s hope these ETFs create the runway necessary to integrate crypto and eliminate some of the financial disasters we have witnessed due to the lack of traditional access.  So, as the crypto nerds like to say, “To the Moon!”.  Good luck out there. 

As always please feel free to share this with anyone you think could benefit.  Thanks!

 

Rob

 

[1] Navigating the Global Crypto Landscape with PWC: 2024 Outlook