- ETFs Launched, and Circle Might Go Public
ETFs Launched, and Circle Might Go Public
What happened when we finally saw the ETFs trade?
The Hype is OVER! Now What?!?!?
Bitcoin Spot ETF’s launched this week, in case you didn’t notice.
The trading volume and inflows set records for new ETF launches, but seem to be below the expectations of both Wall St., and crypto traders.
More allocation to the ETFs will take some time, as financial advisors need to learn more themselves, then determine how to allocate, have client meetings, and then pull the trigger.
Are you ready for the Spot ETFs? Do you know what conversations you’ll have with your clients?
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📉Finally…we have Launch!!
The Bitcoin Spot ETFs are finally here and launched. If you’re fielding questions, and thinking of allocating for your clients, here are a few things you need to consider.
🌟 Understanding Bitcoin ETFs
First, let's talk about what these ETFs mean for you and your clients. Remember, while these ETFs provide exposure to Bitcoin, they don't equate to owning the actual Bitcoin. It's about tracking the price, much like a gold ETF follows the price of gold. Your clients are investing in the value of bitcoin, without directly buying the cryptocurrency.
💡 Choosing the Right ETF
When it comes to selecting the right Bitcoin ETF for your clients, the devil's in the details – and by details, I mean fees. With fund companies competing fiercely on fees, some offering zero fees for initial periods or until they hit a certain asset threshold, your choice will likely hinge on these cost factors. It's essential to do your homework here to ensure you're making the most cost-effective decision for your clients.
⏰ The 24/7 Nature of Bitcoin
Now, here's a twist – while the ETFs trade during regular U.S. market hours, Bitcoin itself trades round the clock, every day of the year. This means the value of the ETF when the market opens on Monday could be significantly different from when it closed on Friday. As an advisor, this calls for setting the right expectations with your clients about potential volatility and price fluctuations.
📈 Managing Volatility and Planning Ahead
Speaking of volatility, just because these ETFs have the SEC's stamp of approval doesn't mean the ride is going to be smooth. You need to have a clear plan in place for handling sharp rises or falls in value. Will you rebalance if the price moves 50% or 100%? What's your long-term strategy? These are vital questions to address.
💸 Type of Account Matters
You really need to think about the type of account you’re using to allocate to the Bitcoin ETFs. The funds may need to sell some of their BTC to cover expenses, and when they do this, it will trigger a taxable event for your clients if they’re holding the funds in taxable accounts. So you might have to explain to a client why their Bitcoin ETF didn’t perform as well as just holding bitcoin.
The "hodling tax" is one thing to keep in mind if you have spot #btc ETF in your portfolio.
This tax is triggered when the fund spends tiny portions of BTC to cover fund expenses. You may be liable for the taxes despite not selling the ETF shares.
Check out my post on… twitter.com/i/web/status/1…
— Shehan (@TheCryptoCPA)
Jan 12, 2024
🎓 Educate Yourself to Educate Your Clients
Last, education is key. You need to understand the value proposition of Bitcoin, how it fits into a diversified portfolio, and the nuances of this asset class. This isn't just about being a savvy advisor; it's about understanding the broader implications of digital assets and blockchain technology in today's economy.
Remember, your role as a financial advisor is to demystify these complex investment vehicles for your clients, helping them make informed decisions that align with their financial goals and risk tolerance.
🌐 Circle's Potential IPO: Bringing More Validity to Stablecoins?
In a week where the spot ETFs were the main topic, Circle, the company that issues the USDC stablecoin, quietly applied for an IPO. If they are approved, this is pretty significant for the crypto and DeFi systems, and for the tokens they represent.
💡 Circle's Impact on DeFi
Circle's USDC coin is a staple in the DeFi world. Its move to go public might raise eyebrows among traditional DeFi enthusiasts. Why? Because going public brings a level of scrutiny and regulatory compliance that contrasts with the ethos of decentralized finance. However, this move could also attract more institutional investors who find comfort in the transparency and regulation that comes with a publicly traded company.
📈 Institutional Trust and USDC's Growth
Institutions are likely to favor USDC for its solid backing – actual dollars in bank accounts, audited monthly by top firms. This trust factor, combined with Circle's ambition to be publicly traded, might mirror Coinbase's path, adding legitimacy and attracting more institutional funds. Remember, the DeFi sector is still small compared to the institutional market, and Circle's focus seems to be on this larger prize.
🚀 Regulatory Challenges and Opportunities
The biggest challenge for Circle will be navigating the regulatory landscape. Issuing a dollar-denominated stablecoin raises questions about its resemblance to the actual dollar, especially as its circulation grows. This becomes even more significant in a scenario where the value reaches hundreds of billions or more. How regulators respond, especially considering the critical views of figures like Elizabeth Warren, will be crucial.
🤔 The Bigger Picture: Blockchain and Payments
From a broader perspective, if blockchain-based payments are inevitable, regulators might prefer a US-based, publicly traded entity like Circle over offshore entities like Tether, which dominates the stablecoin market. This could lead to a shift in market dynamics, especially with recent ETF approvals potentially boosting USDC's adoption.
📈 Demand on the Network
More institutional adoption means more transactions on the decentralized networks. Since the tokens like ETH and SOL are used to pay for transactions, we could see an increase in demand for those tokens, which leads to higher values.
🎙️ What This Means for You as a Financial Advisor
We know most of your clients aren’t transacting much in stablecoins yet. However, more comfort with institutional use of stablecoins for payments, transactions, and just account values will lead to more use by your clients. You will be called on to help with wallets, security, and questions about investments onchain.
👍 Closing Thoughts
Circle's IPO is more than a company going public; it's about the maturing of the crypto world and the intersection of traditional finance with blockchain technology. Stay tuned for our next session, where we'll delve deeper into these topics and help you navigate these changes with confidence.
2024 is already eventful. Hope you’re keeping up.
See you next week!