Why participants should trim profits and play this space in a diversified way
The cryptocurrency fall may not be over yet, but advisors should consider the bottom-basement prices only for the few investors who like to hold riskier assets, said one prominent portfolio manager.
“Anyone who wants to participate in it should keep it to money that they’re not going to need for a very long time,” Hans Albrecht, portfolio manager for Horizons ETFs, told Wealth Professional.
“It’s something that is only for the most speculative part of a portfolio. I think there could be more downside to come.”
Albrecht noted that while Bitcoin and Ethereum are the main participants, hundreds of other cryptocurrencies have been created out of thin air, creating a fever much like before the .com bust.
With the unprecedent asset drop from $3 trillion in November 2021 to less than $1 trillion recently, losing $2.3 trillion very rapidly, crypto is proving it’s not the asset many thought it was.
“What we’ve noticed in the last couple of years is that Bitcoin isn’t so much a digital gold or hedge against inflation,” he said. “It’s very much a risk, a speculative type of asset, because we’ve seen the correlation between markets and Bitcoin being quite positive in the last couple of years. That’s broken down a little bit this year, but the correlation is still quite high.”
Albrecht said that while Bitcoin is still the premier franchise, its current status reflects the withdrawal of the recent federal stimulus, which has abruptly changed as inflation has taken off.
“The Fed has gone from being very supportive to doing a 180,” he said. “So, it’s a source of volatility for markets right now.”
While a lot of institutional and retail investors who finally started investing in crypto in the last two years have been hurt by the current market, Albrecht is not declaring it dead, but cautioning advisors about investing in cryptocurrencies that aren’t backed by anything, some of whose assets have already been wiped out. He still believes Blockchain has a lot of long-term potential and Ethereum has a lot of staying power because there is still some interest in a decentralized currency.
While he noted that we could still get a bounce with crypto as the markets improve, he said, “If things have imploded due to a withdrawal of stimulus, then I think cryptocurrencies will probably continue to struggle because they are very much a recipient of a lot of that stimulus – all the stimulus checks and folks sitting at home looking for something to do who got into crypto.”
He recommended advisors keep investments to a very small proportion of portfolios and also invest in the more secure cryptocurrency Blockchain ecosystem rather than any particular cryptocurrency.
“This is a more diversified way to play the space,” said Albrecht, noting that Horizons ETFs offers several ways to invest in it, including two funds more directly tied to the price of Bitcoin plus the Horizons Big Data and Hardware Index. It’s a broader-based fund with some exposure to Bitcoin as and the blockchain ecosystem, including Bitcoin investment banking and exchanges and big data, storage, storage, digital, and semiconductor companies. Despite the current markets, the three-year-old fund still has about $10 million.
Although Horizons ETF’s inverse Bitcoin fund has done well, Albrecht also recommended that advisors begin to trim some of it “because we don’t recommend these kinds of products as long-term holdings. My advice would be to take some of those profits because these are very volatile markets, and they can turn back the other way.”