Even the most casual of observers know cryptocurrencies1 have been a challenging and volatile investment alternative, during even the best of economic times. Of course, 2022 has been anything but a booming period for the market – and that impact has taken an equally exaggerated toll on digital currencies.
After a market valuation of nearly $3 trillion at its November 2021 peak, 2022 has been a rude awakening for many crypto-investors, losing almost two-thirds of its total value by late July 2022. Some analysts are pounding the “crypto is dead” drum, while others feel that the current troubles are just the latest pendulum swing in this up-and-down sector.
In this exclusive Market Outlook Extra, Axos Invest Senior Vice President Tracy Gallman offers her take on the crypto market, including how it’s viewed, where it’s headed, and how to consider leveraging it in your portfolio:
The same market catalysts that caused the equity and fixed market to fall in 2022 have impacted the cryptocurrency markets. Current macroeconomic and geopolitical turmoil caused the devaluation, a period that has historically been called a “crypto winter.”
This phrase is used when prices contract and remain low over an extended period. In 2018, bitcoin lost more than half of its market cap, with other cryptos such as ethereum and Litecoin also dropping sharply. That “crypto winter” lasted nearly 4 years. Many analysts believe this current crypto winter was set in-motion early in 2022.
Comparing & Contrasting Cryptocurrency
To many, the crypto market is not unlike the equity or fixed-income market. Like those sectors, the crypto market has seen increased attention among retail and institutional investors over the past two years. And like traditional markets, the crypto market has been vulnerable, so investors need to be prepared for volatility and uncertainty.
It’s important for investors to keep in mind that crypto is relatively new and has the potential to carry greater risk than more established investments. It’s simultaneously both an emerging asset class and a speculative one. That means that while there is opportunity for growth, there is also opportunity for significant downside.
Where Could Cryptocurrency Be Headed?
When the liquidity is pulled from the markets, speculative markets are often hit hardest. On the plus side, these downturns do root out companies that are struggling, or in this case, crypto tokens or assets that are not built around established, core fundamentals. “Stronger cryptos” will most likely prevail. As new crypto investors and blockchain users enter the market, the influence of their activity can potentially expose it to even more volatility. Of course, it could also work to help stabilize pricing. The fact is that the track record just isn’t long enough to accurately predict potential outcomes of increased volume. That could prompt you to consider a slow and gradual approach versus committing to large positions, especially if you are close to retirement.
However, there’s good news with cryptocurrency. Investors can potentially profit from this current pullback by taking advantage of the lower prices moving into the next growth phase. If you believe in the fundamental long-term case for blockchain, along with the use case for digital assets (while accepting the inherent risks), then it could make sense to consider a cryptocurrency strategy.
Ready to Invest?
Another important consideration is looking at the use case for bitcoin, ethereum, and other blockchain projects like Cardano and Solana. You need to determine if you believe blockchains have real world applications to help evolve a better ledger system for many industries. Then, investors need to consider whether they want to invest in crypto directly or participate through a money manager.
Many people believe small, segmented allocations to cryptocurrency can be an interesting way to diversify a portfolio. I’d also strongly recommend investors consider investing only disposable income, and to go into crypto investing with the patience and stamina for extreme volatility, all with an eye toward a long-term outcome.
While you can certainly tackle crypto investing on your own, the speed and whiplash twists of the market make the many crypto exchange-traded funds (ETFs)2 that can be purchased through a traditional brokerage account worth checking out. These ETFs provide managed long or short exposure to digital assets, with some offering additional diversification by investing in industries participating in the digital asset space.
Let’s take a look at some popular cryptocurrency and bitcoin ETFs in the market, each available through Axos Invest by way of a Self-Directed Trading account, either traditional or IRA.
Bitwise 10 Crypto Index Fund (BITW)
A diversified bitcoin and leading cryptocurrencies collection. The Bitwise Fund seeks to track an Index comprised of the 10 most highly valued cryptocurrencies, screened and monitored for certain risks, weighted by market capitalization, and rebalanced monthly.
Bitwise Crypto Industry Innovation ETF (BITQ)
Here’s a way to follow some of the crypto trendsetters. BITQ leverages Bitwise’s industry knowledge to spot companies who are making most of their revenue strictly from their crypto activity.
ProShares Bitcoin Strategy ETF (BITO)
The ProShares Bitcoin Strategy ETF was the first cryptocurrency ETF allowed to trade on a major U.S. exchange. BITO holds bitcoin futures’ contracts.
ProShares Short Bitcoin Strategy ETF (BITI)
Think bitcoin declines will continue? BITI is designed to deliver the opposite of the performance of the S&P CME Bitcoin Futures Index with short bitcoin-linked exposure in the form of an ETF. Use it as a sharp hedge against traditional bitcoin and cryptocurrency exposure.
The Valkyrie Bitcoin Strategy (BTF)
BTF is an actively managed ETF available through Nasdaq that invests primarily in bitcoin futures’ contracts.
The Valkyrie Balance Sheet Opportunities ETF (VBB)
VBB is centered around innovative public companies with exposure to bitcoin.
The Valkyrie Bitcoin Minders ETF (WGMI)
WGMI hones in on backing public companies involved in bitcoin mining efforts. Companies are screened based on a longtime crypto sticking point: their usage of renewable energy.
VanEck Bitcoin Strategy ETF (XBTF)
Stacked against funds like BTF and BITO, XBTF differs with a significantly lower expense ratio. It’s also structured as a C-Corp, not a registered investment corporation. That includes the tax advantage of no required long-term capital gains distributions.
Views expressed are as of August 15, 2022, and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the author, as applicable, and not necessarily those of Axos Invest. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.
2An ETF is expected to approximate the performance of the index it tracks, but it may slightly underperform the index due to administrative costs. Less heavily traded ETFs may actually have market values that are significantly higher or lower than the underlying values due to the principle of supply and demand. For example, if a particular sector has fallen out of favor, demand for shares of an ETF in that sector may fall out of favor as well. This could cause the ETF's price to fall further than the underlying value of the fund's actual shares. Like all securities, past performance of any ETF is no guarantee of future results.
ETFs are subject to risk similar to those of their underlying securities, including, but not limited to, market, investment, sector, or industry risks, and those regarding short-selling and margin account maintenance. Some ETFs may involve international risk, currency risk, commodity risk, leverage risk, credit risk, and interest rate risk. Performance may be affected by risks associated with non-diversification, including investments in specific countries or sectors.
Additional risks may also include, but are not limited to, investments in foreign securities, especially emerging markets, real estate investment trusts (REITs), fixed income, small-capitalization securities, cryptocurrencies and commodities. Each individual investor should consider these risks carefully before investing in a particular security or strategy. Investment returns will fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost. Unlike mutual funds, shares of ETFs are not individually redeemable directly with the ETF.
Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV).
Before you invest in an ETF or send money, you should read the prospectus of the ETF carefully and consider the investment objectives, risks, charges, and expenses for the ETF. You can receive a prospectus for each ETF by sending a secure message on our online platform. Those without an Axos account can email [email protected] to ask to receive a prospectus.
Particular ETFs may not be appropriate investments for all investors, and there may be other ETFs or investment options available through Axos Invest LLC that are more suitable.
Investors can place free cryptocurrency ETF trades through Axos Invest from any device, anytime. Get started with your new cryptocurrency portfolio today.
