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ETFs Launched, and Circle Might Go Public

What happened when we finally saw the ETFs trade?

Author

Adam Blumberg
January 13, 2024

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?

We can help

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Axis News Updates

📉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.

🎓 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.

🌐Tokenization of Everything - Larry Fink says its Coming

On CNBC Friday, BlackRock CEO Larry Fink, said bitcoin is a step along the way to tokenizing everything. Let’s go deep into what could happen with tokenized public offerings.

The Current Landscape and Its Limitations

Traditionally, when you buy shares in public companies like Apple or Google through custodians like Fidelity or Schwab, you have what's called 'beneficial ownership.' Essentially, these custodians hold the actual shares, and you control them in your account. This system offers ease and efficiency but comes with limitations such as T+2 settlement delays, as vividly demonstrated during the meme stock frenzy with GameStop and AMC.

Blockchain: A Game Changer for Public Companies

Imagine if public companies' shares were represented as tokens on a blockchain, say Ethereum. These 'Apple tokens' would behave similarly to current shares but with added benefits enabled by blockchain technology.

Immediate Settlement: Blockchain transactions settle within seconds, unlike the current T+2 settlement system. This means immediate ownership transfer without any waiting period.

Enhanced Transparency and Control: Blockchain offers unparalleled transparency. Every transaction is visible

and verifiable, making processes like dividend distribution straightforward and clear. Moreover, this transparency extends to corporate actions, such as voting in shareholder meetings, which could be easily facilitated through tokenized shares.

Self-Custody and Personal Empowerment: One of the most significant shifts is the move towards self-custody. With blockchain, you hold your assets directly in your wallet, much like holding a physical stock certificate, but with all the advantages of digital technology. This change brings us full circle back to the original concept of asset ownership – direct and personal.

Collateralization of Assets: Tokenization opens up new avenues for using your assets more efficiently. For instance, you could collateralize your tokenized Apple shares for a loan on the blockchain. This system could offer more favorable terms compared to traditional credit lines, potentially bypassing credit scores and reducing reliance on high-interest credit cards.

What Does This Mean for Financial Advisors?

The integration of real-world assets, like public company shares, onto blockchain platforms could revolutionize how we approach asset management and client portfolios. As financial advisors, this shift presents both an opportunity and a necessity to adapt. Here's why:

  1. Client Expectations and Market Dynamics: Clients, especially those more tech-savvy, will expect you to be knowledgeable about these developments. Staying ahead means you can better advise clients on these emerging opportunities.

  2. Portfolio Diversification and Efficiency: Tokenization could enhance portfolio diversification strategies and operational efficiency. Understanding these mechanisms allows you to offer more comprehensive and responsive portfolio management.

  3. Navigating Regulatory Changes: As these technologies develop, so will regulations. Keeping abreast of these changes ensures you can navigate compliance effectively.

  4. Educational Role: You can serve as a valuable source of information, guiding clients through the complexities of blockchain and tokenization, demystifying the process, and aiding in making informed decisions.

In conclusion, while the shift to blockchain and tokenization of real-world assets like public company shares is still in its early stages, its potential impact on the financial industry is profound. As advisors, embracing this change, educating ourselves, and preparing to guide our clients through this new landscape is imperative.

2024 is already eventful. Hope you’re keeping up.

See you next week!

-Adam