Be prepared to put in a significant amount of time establishing basics to ensure employees from all walks of life (and, frankly, age brackets) can gain a robust understanding of these new investment options.
Bitcoin: it’s anonymous, mysterious, and unpredictable enough to be a gamble. Yet it remains just stable enough that even those who don’t fully understand cryptocurrency or the blockchain find themselves considering whether or not they should invest whenever value dips. Many even view it as a “get rich quick” scheme due to its aforementioned unpredictability. The Venn diagram of “Bitcoin’s seductive allure” and “reasons for SEC rejection” is very nearly a single circle; famously volatile and previously considered too high-risk and rife with investor nightmares, it’s taken nearly a decade for Bitcoin ETFs to earn SEC approval.
In a major win for Bitcoin enthusiasts, the notorious cryptocurrency has reached a new level of mainstream acceptance as the first Bitcoin exchange-traded funds (ETFs) have begun to hit the market. The VanEck Bitcoin Strategy ETF (CBOE: XBTF) began trading most recently on the 16th, almost a month after ProShares Bitcoin Strategy fund (NYSE: BITO) became the first Bitcoin-based ETF (and the first ETF to enable investors to buy Bitcoin without a cryptocurrency wallet), followed the Valkyrie Bitcoin Strategy ETF (Nasdaq: BTF) which launched three days after ProShares.
However, despite initial enthusiasm, interest seems to be trending downward. While ProShares’ ETF shattered records and hit over $1 billion trading volume at the end of its first day with 24 million trades , interest seems to be flagging as Valkyrie Bitcoin Strategy brought in $60 million and VanEck’s ETF ended its first day around $4.8 million; a comparative pittance. Bloomberg elucidated that the Bitcoin “has slipped 5.7% since mid-October, despite hitting an all-time high last week. The ProShares ETF has declined even more in that period, slumping 7.7%, because the fund must continually roll forward its futures exposure as the contracts expire -- paying a fee to do so.” [1] Indeed, Bitwise Asset Management and Investco Ltd. have both decided to stop pursuing Bitcoin futures ETFs, citing both these associated costs and their probable underperformance (especially when compared to spot Bitcoin). With all that said, money continues to flow in, so in typical Bitcoin fashion there could be a sudden, surprising turnaround in sentiment.
Now that Bitcoin has officially become part of conventional investing, sponsors and benefits advisors should prepare themselves for a flood of related questions (and may already be inundated!). Start with the basics and be prepared to explain what cryptocurrency and Bitcoin are, what the blockchain is and how it works, and what “mining” is. For employees who lean toward ESG investing, particularly those concerned about the environment, they may want to be informed about the serious environmental impact of cryptocurrency, which could factor fairly heavily into this decision. For those who’ve graduated beyond entry-level explanations, it’s important to note that these funds are futures-backed, as no funds that directly hold cryptocurrency have yet gained U.S. clearance; in fact, VanEck recently failed to get a spot Bitcoin ETF approved. Enthusiasm, while strong when ProShares launched, has also waned considerably.
Whether or not Bitcoin will be part of your organization’s investment options (perhaps you’re even considering a Bitcoin 401(k)? Or, alternatively, perhaps not), as well as how and why, will very likely be hot topics of conversation in the near future. But as an investment strategy well-known for being fairly inaccessible and often difficult to understand, sponsors and benefits advisors should be prepared to put in a significant amount of time establishing basics to ensure employees from all walks of life (and, frankly, age brackets) can gain a robust understanding of these new investment options.
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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