What Investors Should Understand About Bitcoin ETFs

Bitcoin is having another moment. As we write, the cryptocurrency is trading near all-time highs, riding a wave of enthusiasm that accompanied the SEC approval – and subsequent issuance – of Bitcoin exchange-traded funds (ETFs).¹

Investor enthusiasm has been palpable. Since the January 11 launch of Bitcoin ETFs, the top 10 U.S. spot Bitcoin funds have seen over $50 billion of inflows – a historic clip. One ETF in particular, the BlackRock iShares Bitcoin Trust, has over $10 billion in assets as of March 1, which is the fastest any ETF has gotten to $10 billion in BlackRock history.²

The SEC’s recent approval of Bitcoin ETFs removes all of the technical hurdles investors faced in gaining exposure to the cryptocurrency. Prior to the arrival of ETFs, investors could gain access through mutual funds (often expensive), non-compliant crypto trading platforms (which were sometimes fraudulent), futures contracts (skewed), or cryptocurrency wallets (complicated).

Positioning Your Investments For a Volatile Market

“Don’t put all your eggs in one basket.” It’s a classic proverb, and for good reason. Diversifying your portfolio is one the most basic pieces of investing advice—but unfortunately, it’s also advice that too many investors ignore.

Zacks Advantage would like to help you ensure that your investments are properly diversified so that you can avoid the risks of over-concentration in any particular asset class. That’s why we’re offering our free guide, Is Your Investment Portfolio Actually Well-Diversified? ³

Act now to get the basics of diversification, including

• Why the average investor’s returns lag behind almost every investment category
• 4 myths of a diversified portfolio
• How to create a truly well-diversified portfolio

Learn more with our free guide, Is Your Investment Portfolio Actually Well-Diversified? ³

With ETFs, investors get easier access, disclosures that come with other regulated securities, and the ability to trade on regulated exchanges. In other words, investors get more “protections” and better accessibility.

But that doesn’t mean Bitcoin ETFs are a good investment.

According to the SEC’s statement in approving the first Bitcoin ETFs, “Bitcoin is primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing. While we approved the listing and trading of certain spot Bitcoin ETP shares today, we did not approve or endorse Bitcoin. Investors should remain cautious about the myriad risks associated with Bitcoin and products whose value is tied to crypto.” ²

We agree. Our view, however, is not that Bitcoin is an inherently bad investment. It is just a speculative investment – an important distinction. At the end of the day, Bitcoin does not generate earnings and free cash flow, it does not pay dividends, and it does not yet offer any discernable correlation/non-correlation relationships with other asset classes. In short, it’s all over the map.

Some investors may still choose to speculate in cryptocurrencies. That’s fine. But with equities’ proven long-term track record, we’re not convinced doing so is necessary. We would also remind investors of three key principles of investing that have withstood the test of time, and that we think still apply greatly at this moment:

1. Don’t Invest in Something You Don’t Understand – this investment principle harkens back to an old Warren Buffet adage, where Buffet says that if you can’t understand in less than 10 minutes how a company makes money and what the main drivers impacting the industry are, then you should not invest in it.⁴

   When it comes to cryptocurrency, there are only a handful of people in the world who can explain how it works, and there is virtually no one in the world who can clearly define its future impact on business and economics. Because the future of cryptocurrency largely relies on its acceptance and application in business and its broad-based regulation by the government, there is no way to know today what type of future that may look like. It’s also ripe for competition if it does indeed gain traction, which may deem Bitcoin irrelevant in the future.

2. Chasing Heat Often Means You’re Too Late – in our view, it was just around the time that cryptocurrency reached its peak of popularity and attracted investor attention, that its price came crashing down some -70%. We see this all too often with “hot” asset classes, where investors see big returns and decide to invest at just the wrong time. Thinking back to another Warren Buffet adage, it’s better to “be fearful when others are greedy and greedy when others are fearful.” ⁵ Bitcoin enthusiasm today feels a little ‘greedy’.
3. Slow and Steady Wins the Race – investors are all too often lured by the idea of huge returns, but the question is: are they really necessary to be a successful investor and to reach your goals over time? When investors decide to reallocate assets to a risky endeavor in hopes of achieving a quick burst of big returns, it often means abandoning a time-tested long-term approach that is designed to help them reach their long-term investment objectives. A good rule of thumb comes to mind when considering the wisdom of making a truly speculative investment: only invest what you are willing to lose completely. For everything else, you should remember rules one and two.

Bottom Line for Investors

Cryptocurrency can become a viable investment option in the not-too-distant future. But from where it stands today, with little regulatory oversight, very narrow application and acceptance across business and the economy, and operating in a shadow world where manipulation is common, it is virtually impossible to make an acceptable case for investing retirement assets into it, in our view. When considering the three investment principles above, cryptocurrency fails to pass any of the tests.

Most investors can get where they need to go over the long term by owning a diversified portfolio of stocks and/or ETFs. In fact, “diversify your portfolio” is one the most basic pieces of investing advice. Sadly, in our experience many investors still put all (or most) of their eggs in one basket.

At Zacks Advantage, we strive to help every investor properly allocate their assets. In fact, we’ve put together a helpful guide to help you understand the basics of portfolio diversification, including:

• 4 myths of a properly diversified portfolio
• Why the average investor’s returns trail almost every other investment category
• How to create a truly well-diversified portfolio

Get our free guide, Is Your Investment Portfolio Actually Well-Diversified?,⁶ to learn how to create a truly diversified portfolio.

Download our FREE Guide

© 2024 Zacks Advantage  |  Privacy Policy  |  Unsubscribe

¹ SEC. June 10, 2024.

² Wall Street Journal. March 5, 2024.

³ Zacks Investment Management may amend or rescind the Is Your Investment Portfolio Actually Well-Diversified? guide offer for any reason and at Zacks Investment Management’s discretion.

⁴ Business Insider. 2017.

⁵ Investopedia. 2023.

⁶ Zacks Investment Management may amend or rescind the Is Your Investment Portfolio Actually Well-Diversified? guide offer for any reason and at Zacks Investment Management’s discretion.

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Advantage is a service offered by Zacks Investment Management, a wholly-owned subsidiary of Zacks Investment Research.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.

Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.

Robo investments are subject to some unique risks, including, but not limited to, the fact that investment decisions are made by algorithms based on investors’ answers to questions, there is a lack of human involvement, and there is the possibility that the software may not always perform exactly as intended or disclosed. Such investment programs are only suitable for investors who can bear the risk of a complete loss of their investments.

The S&P GSCI is the first major investable commodity index. It is one of the most widely recognized benchmarks that is broad-based and production weighted to represent the global commodity market beta. The index is designed to be investable by including the most liquid commodity futures, and provides diversification with low correlations to other asset classes. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.

The NASDAQ-100 Index includes 100 of the largest domestic and international non-financial companies listed on The NASDAQ Stock Market based on market capitalization. The Index reflects companies across major industry groups including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. Index composition is reviewed on an annual basis in December. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

Zacks Investment Management 10 S. Riverside Plaza, Suite 1600 Chicago IL 60606-3830