The crypto spring is coming | ETF trends

Digital Assets Council of Financial Professionals Founder Ric Edelman, ETF.com Senior Analyst Sumit Roy, Bitwise CIO Matt Hougan and 21 Shares Co-Founder and President Ophelia Snyder discussed the recent crypto downturn and what’s in store for the nascent asset class on the panel Waiting for the crypto spring: What to expect between now and then.

With prices down 50-70% or more in some cases, crypto has struggled this year. “What some are calling a crypto winter could represent a great opportunity for long-term investors,” Roy said, introducing the topic.

With lots of jargon and deep references to obscure computer science, there is more to crypto than digital art, according to Roy, who thinks of crypto as a computer system not owned by a single entity.

Snyder said: “Crypto can be a very broad range of things. I don’t like to define everything, I think it’s far more useful to break things down by use cases.” Looking at the ecosystem holistically results in losing some of the nuances.

Edelman sees bitcoin as more than a payment system or just a store of value. “Bitcoin is a marketing opportunity. It’s that simple.” He sees it as potentially useful for advisors. Even something like “hating bitcoin” can create an opportunity.

“There are so many people who are reflexively skeptical of it,” Hougan said, continuing, “It’s not a way to buy a cup of coffee. It’s a technology.” Edelman also sees crypto as an asymmetric investment opportunity where you can lose 100% of your investment but also see it grow 10x.

Ethereum’s upcoming upgrade

The Ethereum merger is the single biggest software update to ever happen in crypto. People have been working on this for years. It will create scarcity in the asset and help reduce the energy intensity of the asset. “It’s probably one of the most exciting new innovations we’ll see in crypto this year, if not for the next few years,” Snyder said.

Edelman said the merger will remove one of the biggest objections to crypto, as it will cut 99% of energy use and make it more compatible with an ESG-focused world. Edelman sees many investors believe this could push Ethereum past Bitcoin to become the largest crypto by market share.

“People are now realizing that Bitcoin and Ethereum are as different as Google and Salesforce. You can’t have just one,” Hougan said. Hougan also sees the merger as paving the way for a huge increase in scalability. Ethereum currently processes 15 transactions per second. Hougan sees it going up to 100,000 in a few years, paving the way for more mainstream adoption.

Ethereum has more broad and practical applications than Bitcoin, according to Edelman.

“I think of ether like I think of real estate,” Hougan said, noting that people who think of bitcoin as “digital gold” might see Ethereum more as “digital real estate.”

Snyder observed that Ethereum “allows you to capture returns that are not tied to bond markets or what the Fed is doing today.” Edelman agreed, noting that the IRS hasn’t been able to figure out how to tax it, which makes it extra important in this market environment.

Betting on Bitcoin

“You’re still dealing with a high-risk asset,” Snyder noted, “that said, we’re looking at significantly reduced prices.” Snyder sees prices still significantly elevated above where they have been in the long run and sees many positive signs.

Hougan believes Bitcoin has done a good job in the face of inflation. “Bitcoin is a hedge against future inflation,” Hougan said, noting that Bitcoin is still up three or four times since COVID, even with the drawdown.

With many investors seeing clients make small thematic allocations to things like robotics or cybersecurity, Edelman wonders how anyone would not see crypto the same way. “Being at zero [in crypto exposure] you’re probably 100% wrong,” Edelman said.

Crypto is a diverse space

“I think this is an early-stage disruptive technology,” Hougan said. Hougan believes crypto will be more important in five years than it is today, although it is unclear which crypto will come out on top. Hougan argued for diversity beyond just Bitcoin. “Invest for the long term.”

Snyder agreed, arguing for index exposures to crypto, noting that single names like Bitcoin used to take up all the oxygen, but now crypto has a variety of currencies, associated technologies and all kinds of potential exposures.

“You don’t need to become a crypto manager any more than you do a stock manager,” Edelman said, noting that advisers are probably much better at it than they give themselves credit for.

Hougan believes between 1-5% portfolio exposure to crypto is good portfolio exposure for most people, while Edelman says advisors have a fiduciary responsibility to engage with crypto, comparing clients to teenagers drinking beer. “They do it even if you don’t know it.”

There are unexpected uses for crypto even in the dead of winter. Bitcoin and Ethereum are not subject to the see-sell rule, according to Edelman. That means you can have customers sell bitcoin and Ethereum, record a loss for tax purposes, and then buy back the same bitcoin and Ethereum. Advisers who do not know this cost their clients money.

“You don’t have to change your practice for crypto. Crypto has changed to accommodate your practice,” Edelman said.

For more news, information and strategy, visit Crypto Channel.