Happy Vibes in Denver (I know…always happy vibes in Denver)!

Crypto had quite a week, led by Big Orange, and it happened while thousands of devs, investors, degens, were in town for ETH Denver, the world’s largest Ethereum hackathon.

Some people are surprised at the bitcoin growth? Not this guy.

If you understand how bitcoin works, this shouldn’t be surprising.

This week:
Bitcoin keeps moving on up - we’re not surprised
Rebalance Crypto, or No?
Uniswap Fee Shift

Axis News Updates

📉You Understand Why This is Happening, Right?

This week, while ETH Denver was happening, the crypto market rallied hard, led by the old man on the block, bitcoin.

We’ve seen crazy records in ETF inflows.

Some are surprised by the level of crypto growth. Some are surprised by the ETF inflows.

If you understand bitcoin, this shouldn’t be surprising. As I said in a piece for ETF.com this week, there has never been another ETF where the ETF so directly impacts the price of the underlying asset.

I don’t understand the surprise!

Let’s get into this

Spot bitcoin ETFs got approved in early January. There had already been moves up in bitcoin in anticipation. Keep in mind, at this time, I would guess most RIAs, and 95% of broker/dealers were not allowing the bitcoin spot ETFs on their platform.

We still saw records as far as volume in the first week or so. Of course, the price shot down, because Greyscale was selling bitcoin as investors sold GBTC, either to lock in their profits, or due to the crazy-high fee of 1.5%.

This had some people calling for near $30,000 bitcoin. In reality, we didn’t know how much more Greyscale would have to sell. But, remember, BlackRock, Fidelity, and Bitwise were buying it up.

So…the bleeding stopped. Greyscale stopped selling. Now, every new bit of interest in any of the ETFs caused more demand for the underlying asset - bitcoin.

Supply vs. Demand and FOMO

And everyone in here knows, there is a very limited supply, and many of the largest holders aren’t selling anytime soon. So the market makers have to continue to bid the price up to fulfill their duties to the fund companies.

As the price rises, we see more interest from spot bitcoin owners, and unfortunately, those that are going to use leverage on some exchange elsewhere in the world to buy even more.

Well, when the average US investor wakes up and sees the price of BTC has gone up another $1,000 over night, he’s going to start allocating to the ETFs in his portfolio (at no more than 5%, of course).

Guess what…that causes more demand for bitcoin. Who’s selling? No one!

And we’re only making 900 more bitcoin per day. The ETFs alone are having to gobble up over 11,000 BTC per day.

Demand is dwarfing new supply. There’s also a record number of bitcoin that hasn’t moved in over a year. Those holders are clearly not selling. So the price gets bid up again.

Open the Floodgates

Now, larger RIAs and B/Ds are just starting to allow the spot ETFs on their platforms. Carson Group allowed them this past week…and they have $30 billion AUM. We’re hearing Morgan Stanley might allow it in the coming weeks.

What did everyone think was going to happen?

If some advisors have clients who can now safely allocate 2-5% of portfolios to bitcoin exposure via the ETFs, THAT IS A F@$KING MONSTER AMOUNT OF BTC DEMAND!

For an investor, it’s very little risk. 3% of my portfolio that has volatility, vs. the potential upside? Of course I’m in.

Then we start the cycle again. I buy the ETF. The market maker has to buy bitcoin by bidding up the price. Spot BTC investors get their FOMO and buy more, causing more FOMO from ETF investors, who buy more.

And don’t even get me started on the halving coming in May.

Understanding the Tech leads to Good Analysis

I’m not writing this to say we’re so smart for having said this for months.

If you understand how bitcoin works - supply, investment theses, demand - it just makes sense.

You don’t have to look at global demand and think “Are we at the peak of demand for now?”

You think of it client by client, and advisor by advisor. Will each advisor have a couple more clients per week who are interested in an allocation to bitcoin? Likely. Think of all the $17 trillion in IRA money.

Are those clients going to be ok with the risk of a 2-5% allocation, when they look at the price movement? Doesn’t even have to be the store-of-value thesis. Just the upside without PITA of crypto exchange, KYC, reporting, etc.

Abso-f&#king-lutely!

Bid the price up again

…and the cycle continues.

Understand the technology and the investment theses, and you can’t help but see this coming.

Will You Rebalance Crypto in Portfolios?

This came up in a live session we did a few weeks ago. Will you be rebalancing the crypto portion of client portfolios if the prices move up significantly?

The Big Question: To Rebalance or Not?

Alright, imagine this – you've got Bitcoin and Ethereum making their grand entrance into your clients' investment strategies. They're like the new kids on the block in the world of diversification. Bitcoin's got this whole digital gold vibe, offering a hedge against inflation, which is pretty timely given the dollar's recent performance. And Ethereum? It's like investing in the early days of the internet – so much potential.

But once we welcome Bitcoin and Ethereum into the portfolio, we're faced with a dilemma. As they grow (or fluctuate), do we adjust their slices of the portfolio pie to keep things balanced? Or do we let them do their thing and see where the journey takes us?

Both Sides

On one side of the coin, we’re used to rebalancing. That’s part of efficient portfolio theory. Sell the winners and buy the losers to even out gains and take advantage of volatility.

But bitcoin and crypto are different animals. If your investment thesis is for a store-of-value or inflation hedge, that’s a very long-term thesis. Do you want to let that play out rather than trying to time?

If your allocation is to ETH (as with a possible ETF coming this year), the investment thesis might be like an early investment on the Internet overall. Do you sell when the price goes up just to rebalance?

I don’t know the answer, but it will be something to think about as you’re having client conversations in the coming months and years.

Where Do We Go From Here?

As advisors, we're not just here to pick investments. We're here to steer the ship through these decisions, armed with a strategy that makes sense. Whether you're all about keeping things balanced or you're leaning towards a "let it grow" approach, the key is having a solid plan you can explain over a cup of coffee.

And hey, with Bitcoin spot ETFs now in the mix (and maybe Ethereum ETFs on the horizon), we've got more tools than ever to work with. It's about making crypto accessible and manageable, giving us more ways to tailor our strategies.

Wrapping Up

So, what's the verdict? Rebalancing crypto – a must-do, or a maybe-not? It's a big question, and there's no one-size-fits-all answer.

I'd love to hear your take on this. How are you approaching crypto in your clients' portfolios? Any strategies or insights you're willing to share?

We Launched a Podcast!

Years ago we had a podcast about crypto and DeFi, and we decided to re-launch the Interaxis Podcast. Now we’re talking about the happenings in crypto, and how they affect you, the financial advisor.

Interaxis Podcast

If you’re enjoying this, tell your friends. Always something happening in crypto and we’ll break it down for you.

See you next week!

-Adam