Allocation Discovery

🌐 We’re Seeing Allocation Discovery

After over 2 ½ months of the BTC ETFs, we’re in a period some refer to as price discovery. The market of investors, buyers, sellers, and traders are working to find a suitable price for bitcoin based on current macro and micro factors.

Based on our conversations recently, as well as metrics from exchanges, ETF market makers, and the bitcoin blockchain, tihs also appears to be a time of both allocation discovery and planning discovery.

Let’s break down the happenings, why they’re important, and what it all means for you.

Allocation Discovery

For most of Bitcoin’s existence, allocating to bitcoin has been for the speculator or the libertarian. They have been accumulating bitcoin and holding in anticipation of long-term price appreciation, and collapses in the government and economic systems.

We have described this as the Revolution and the Macro of bitcoin investment theses.

Later, we saw not so much of an investment thesis, but trades based on sentiment and other technical data. Bitcoin had support, resistance, and channels. It followed cycles.

ETF’s have changed the conversation

The approval and successful launch of the ETFs have moved bitcoin to an acceptable investment, and part of a portfolio. We have evidence that investors, likely with the guidance of their advisors, are finding the right allocation as part of an overall portfolio.

Most investors aren’t aping in with 50% of their portfolio, nor are they buying a tiny amount of crypto hoping for a quick 1000x.

They’re allocating 1-5%, often via the ETFs and seem to be comfortable with the volatility. When we saw a 20% drop in BTC price, we did not see the outflows from ETFs we might have expected from more typical, trader-focused spot markets.

What’s changed?

The new investors get that bitcoin is a longer term investment, that it will be volatile based on factors they can’t control, or even foresee, and they’re ok with it.

A key part of having financial advisors help clients with any investment allocation, and a volatile one like this, is the setting of expectations, and creation of a plan for all investments.

The behavior of investors around that large drawdown makes me think we’ll start to see more allocation within 401k plans, corporate treasuries, and traditional brokerage accounts, where the investor is owning bitcoin rather than the ETF.

As we often say in crypto - don’t trust, verify. The data so far has verified that, to many investors, and their advisors, bitcoin is a viable part of a portfolio.

What does this mean for the price of bitcoin?

As always, we’re not 100% sure, but can logic our way through it.

ETF investors aren’t going to be spooked by a 20% drawdown in price. This means that the ETF’s will likely continue to accumulate investment, without the funds flowing out.

We also have the halving in April, so new supply will be cut in half.

Seems like we’ll continue to have inflows from new investors, allocating a small percentage for the long term. Couple that with short supply, and you likely get rising prices.

Rising prices → FOMO → more inflows → more rising prices

How are you allocating for clients?

Next week we’ll discuss Planning Discovery. How investors and advisors are looking at all planning - tax, estate, integration - around bitcoin and crypto.

See you next week!

-Adam