Welcome to the Weekly Axis - November 11, 2023

It was a big week for the entire crypto ecosystem. We had great price movement in BTC and ETH, mainly due to the ETF speculation. Also had an exciting new deployment from Coinbase.

The Rise of ETH: BlackRock's Application for an ETH ETF

Summary: BlackRock recently filed an application for an ETH ETF, signaling the potential approval of an Ethereum spot ETF in the near future. This development follows their earlier application for a Bitcoin spot ETF. It is likely that other players in the market will follow suit and seek approval for their own ETH ETFs. Grayscale has already filed to transition their Ethereum trust into an ETH spot ETF. With the approval of a Bitcoin spot ETF, it becomes increasingly difficult for the SEC to deny approval for other cryptocurrencies like Ethereum.

How it Pertains to Financial Advisors: The introduction of an ETH spot ETF would generate institutional demand and attract significant investments, similar to what we have seen with Bitcoin. You need to be aware that Ethereum's issuance policy differs from Bitcoin's. While Bitcoin has a fixed supply of 21 million coins, Ethereum's supply is dynamic, with new coins created and burned with each block. This means that the direct correlation between the inflow of funds into an ETH ETF and its impact on the token's price is not as straightforward as it is with Bitcoin.

However, the approval of an ETH ETF would still have a substantial effect. It would allow institutions, as well as individuals with IRAs, 401ks, and retirement plans, to invest in Ethereum. This would signify a significant step forward for the U.S. government and regulators in embracing Ethereum and its native token, ETH. Financial advisors must understand the differences between Ethereum and Bitcoin, including their purposes and fundamental valuations. This knowledge will enable them to explain to clients the reasons for holding an ETH ETF and why it may have value in their investment portfolios.

In conclusion, the potential approval of an ETH ETF presents you with an opportunity to explore the inclusion of Ethereum in client portfolios. While the investment thesis for Ethereum differs from that of Bitcoin, understanding these distinctions will allow advisors to guide their clients effectively and explain the value proposition of both cryptocurrencies.

Coinbase Launches ID Service for Crypto Wallets

Coinbase has just launched a new ID service that has some major implications for our industry.

So here's the deal: Coinbase has introduced a service where you can connect your crypto wallet, whether it's an Ethereum wallet, a MetaMask wallet, or even a Coinbase wallet, and use it as your verification of identity. This means you no longer have to rely on traditional methods like usernames and passwords or email and password combinations. Instead, you can log in with your wallet.

Now, why is this such a big deal? Well, Coinbase has over 100 million users worldwide, making it a trusted and widely recognized platform. By allowing users to log in with their wallets, Coinbase is paving the way for a future where we interact financially and handle our data using our wallets as a form of digital identity.

This has significant implications for financial advisors like us. Imagine managing client accounts without even knowing who the client is. Sounds crazy, right? But with this new development, clients can go through the necessary KYC and AML processes elsewhere, proving their legitimacy, and then interact with us using their wallets. We can provide financial guidance, advice, and services without needing to know their personal information.

This shift towards self-custody and control over assets and identity is something we need to pay attention to. As financial advisors, we'll need to understand how to navigate this new landscape, ensuring the safety and security of our clients' wallets and private keys. We'll also need to help clients determine which assets go into which wallets and how to keep everything secure.

Coinbase's move may seem small, but it's a game-changer. As a publicly traded company with a massive user base, their endorsement of wallet-based identity verification carries weight. So, let's keep an eye on this development and stay ahead of the curve in adopting crypto in our practice.

Strategies for Financial Advisors Ahead of an ETF Approval

There's a lot of buzz around the potential approval of a spot Bitcoin ETF. Now, you might be wondering how this could impact you and your clients, especially if you don't have the ability to directly buy or hold Bitcoin. Well, fear not, because there are alternative ways to get exposure to Bitcoin without the hassle.

One option to consider is the Grayscale Bitcoin Trust (GBTC). This trust has been trading at a discount for a while, but if an ETF is approved, GBTC could convert into an ETF. This means that not only would your clients get to participate in the upside of Bitcoin, but they would also benefit from any discount that exists.

Another avenue to explore is investing in MicroStrategy stock. As you may know, MicroStrategy's CEO, Michael Saylor, has been buying up Bitcoin like there's no tomorrow. This has essentially turned MicroStrategy into a de facto Bitcoin ETF. If the price of Bitcoin skyrockets due to a spot ETF approval, the value of MicroStrategy stock is likely to follow suit.

If you're looking for more direct exposure, publicly traded mining stocks like Marathon Digital and Riot Blockchain could be worth considering. These companies mine Bitcoin as their primary product, so if the price of Bitcoin goes up, so does their value. Just keep in mind the risks associated with mining, such as the upcoming halving in April.

There is also exposure to the whole industry through Coinbase stock. Its a publicly traded company offering services that will be used even more as we see more investment and adoption of crypto.

Now, let's talk about how all of this affects you as a financial professional. By exploring these alternative avenues, you can provide your clients with exposure to Bitcoin without actually buying the cryptocurrency itself. This allows you to keep it under your assets under management (AUM) and take advantage of liquidity opportunities. Allocating a small percentage of your clients' portfolios to these options could potentially yield significant returns if the price of Bitcoin surges.

Remember, I'm not giving you financial advice here, but rather presenting you with different ways to research and consider getting your clients involved in the crypto space. So, if you're preparing for a possible spot ETF approval, these alternative options could be a great way to offer your clients exposure to Bitcoin without the complexities of direct ownership

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Until next week,

— Adam