Chris Loeffler is the CEO of Caliber (CaliberCos Inc.), an alternative asset manager and fund sponsor with approx. $500M in AUM.
Because of the recent influx of crypto investors seeking to diversify their portfolios and protect their capital gains from the sale of digital assets, alternative investments like cryptocurrencies and nonfungible tokens (NFTs) have become a common segue for asset managers to connect with this new investor audience. This further expansion into alternative assets has resulted in me closely following the latest developments in cryptocurrency and actively attempting to predict what this means for future investments.
One of the biggest developments in cryptocurrency recently is the SEC allowing the first futures-based bitcoin futures exchange-traded fund (ETF) to be publicly traded on Wall Street. This is big news for the crypto investing community for several reasons:
1. Cryptocurrencies — like Bitcoin and Ethereum — and NFTs are becoming more mainstream as an alternative investment option that can be used to diversify your portfolio.
2. The arrival of this ETF gives cryptocurrencies more legitimacy as an alternative investment option.
3. The publicity of this ETF alone will potentially bring more awareness to crypto investing to the general population, which can potentially drive demand and the prices of these assets.
While proponents of the bitcoin ETF are pleased with this development for the reasons listed above, many also believe the fund is lacking an important function. The current ETF only tracks the future performance of bitcoin. This means you’re not actually holding any bitcoin when you invest and or/sell your stake in the fund.
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Some of those critiquing the ETF want a fund that tracks physical bitcoin and gives you the ability to redeem it to a crypto wallet, as it is a bearer asset that is highly liquid in a market that’s open 24 hours a day/seven days a week. As this ETF doesn’t do much for them in that regard, their argument is if you want to own bitcoin, you can simply open an account with a third-party cryptocurrency wallet such as Coinbase, Metamask or Binance to easily purchase it.
Historically, bitcoin is infamous for being highly volatile, which had made the SEC resist allowing a cryptocurrency ETF for years. One of the biggest reasons why they resisted this movement included that anyone trying to launch a crypto ETF had been unable to prove how they could protect investors to market resistance and manipulation tactics. However, with this new ETF, the SEC is, according to the chairman, trying to “protect investors through better regulation and oversight of the thousands of new digital assets and coins”.
So, only time will tell if this ETF ultimately helps or hurts crypto investing. My impression is that this crypto-tied ETF is going to open doors to people who have been resistant, or just uninformed in general, to the potential and utility cryptocurrencies and NFTs hold. Because of this offering, the potential for investing in digital assets will become more mainstream as it now allows anyone to add it to their portfolio.
I see this development opening doors for the SEC to allow more “traditional” cryptocurrency investing in the future; people should soon be able to buy, sell and hold physical bitcoin, other digital currencies and NFTs in secure crypto wallets that are integrated within the Dow and NASDAQ.
Overall, the buying power of crypto is imminent, and it’s here to stay. Every day, more businesses in the U.S. are accepting it as a form of payment, and there are even numerous countries around the world that are adopting the use of cryptocurrency as legal tender. My business has seen how these digital assets can help investors diversify their portfolio and to sustain wealth. There is advantageous tax-advantaged growth potential when rolling over the capital gains from the sale of your crypto or NFT assets into a qualified opportunity zone fund (QOZF), including 10-year tax-free growth.
I’ll discuss this type of asset class in my next article.
Disclaimer: The information contained herein is general in nature and is not intended, and should not be construed, as financial, investment, legal or tax advice in each instance provided by Chris Loeffler. His company does not actively participate in cryptocurrency or NFT investing.