Should You Invest in a Bitcoin ETF? 1

Should You Invest in a Bitcoin ETF?

Digitex Futures
Digitex
• Dave Reiter
April 22, 2021

The global investment community was introduced to exchange-traded funds (ETFs) on January 22, 1993, when State Street Global Advisors launched the SPDR S&P 500 ETF. It was designed to track the daily performance of the S&P 500 stock index. The State Street ETF immediately became a popular product among individual and institutional investors because it provided a low-cost approach to portfolio diversification.

Today, 28 years after its launch date, SPY remains one of the most heavily traded investment vehicles within the global financial services industry. It’s not uncommon for daily volume to exceed 100 million shares.

ETFs Gain Popularity Following the Dotcom Crash

During the past three decades, ETFs have exploded in popularity. However, they certainly did not become an overnight sensation. For the first 10 years of their existence, investors basically ignored ETFs because the industry did a poor job of marketing their products and communicating the benefits of owning exchange-traded funds.

Despite the fact that stocks had experienced a roaring bull market throughout the decade of the 1990s, most investors lost money by aggressively speculating in the “high flying” internet stocks. Therefore, by the early-2000s, investors were searching for a low-cost, diversified method for participating in the stock market. ETFs were the perfect solution.

In 2003, the size of the global ETF industry was USD $204.3 billion. Investments in ETFs have exploded during the past 18 years. In fact, with the exception of 2008, the value of exchange-traded funds has increased every year since 2003. In 2010, the ETF asset class reached its first major milestone by exceeding USD $1 trillion in market capitalization.

As you can see from the following table, investors have been pouring money into ETFs during the past decade. In fact, since 2010, the asset class has expanded by 489%. By 2023, the global market capitalization of exchange-traded funds is projected to be USD $12.0 trillion, making it one of the fastest-growing investment vehicles of all time. These numbers are based on data provided by Statista.

  • 2010 – USD $1.313 trillion
  • 2013 – USD $2.283 trillion
  • 2015 – USD $3.423 trillion
  • 2017 – USD $4.690 trillion
  • 2019 – USD $6.194 trillion
  • 2020 – USD $7.736 trillion

ETFs Viewed Through the Lens of Technological Innovation

For the past several decades, the financial services industry has been constantly criticized for its lack of innovation, particularly as it relates to technology. The industry has always been behind the curve in regard to technological innovation. In fact, technology improvements were practically non-existent for the majority of the 20th century.

However, in 1992, one of the most disruptive innovations in the history of financial services was unveiled when E*Trade introduced online trading. This new financial technology introduced millions of first-time traders to the stock market. For example, in 1995, only 300,000 investors in the United States had an online brokerage account. Five years later, in 2000, 11.3 million traders were participating in online trading. This represents a dramatic increase of 3,667%.

Is it simply a coincidence that exchange-traded funds were introduced to the investing public at precisely the same time as online trading? The short answer is, “no.” It’s not uncommon for innovative solutions to arrive in waves or clusters. An important new discovery (like online trading) usually lays the groundwork for other innovators to roll out new trailblazing technology (like ETFs).

In terms of its impact on the financial services industry, ETFs will go down in the history books as one of the most disruptive forces in comparison to other major industry groups. Please review the following list taken from data provided by the U.S. Census Bureau, Statista, BlackRock, and the International Federation of Robotics.

Annual Technology Adoption Rate Since 2009 (CAGR):

  • Smartphones – 24.3%
  • ETFs – 18.0%
  • Social media – 13.0%
  • Retail sales via e-commerce – 11.8%
  • Industrial robots – 10.9%

When most people view this list for the first time, they are shocked to discover how impactful ETFs have been on the financial services industry compared to major innovations across other industry groups. Exchange-traded funds have easily been one of the most disruptive forces of the past 50 years.

Two Disruptive Technologies Join Forces: Bitcoin and ETFs

Bitcoin was launched by Satoshi Nakamoto on January 3, 2009. The early years of Bitcoin (BTC) were very similar to exchange-traded funds. Investors were not the least bit interested in learning about the benefits of owning BTC, which is exactly the same type of reception received by ETFs. It’s not uncommon for people to ignore new discoveries, particularly technological discoveries.

As a general rule, people prefer to avoid disruptive innovations because they don’t like daily changes to their routine. This explains why it takes several years for some of the best discoveries to reach mainstream adoption.

As we previously mentioned, ETFs exploded in popularity beginning in the early-2000s, as investors discovered the benefits of owning exchange-traded funds. It took 17 years for ETFs to reach USD $1 trillion in market capitalization. Bitcoin achieved the same level in 12 years. In fact, BTC became the fastest asset class to reach USD $1 trillion in market capitalization. Most likely, Bitcoin will eventually exceed the asset level of ETFs, which currently stands at approximately USD $8 trillion.

During the past few years, several investment firms have attempted to gain regulatory approval for a Bitcoin ETF. In the United States, the Securities and Exchange Commission (SEC) has not yet approved any Bitcoin ETF application.

However, Canadian regulators provided clearance to Purpose Investments Inc by allowing the investment company to become the world’s first Bitcoin ETF. The official launch date was February 18, 2021. Although the Bitcoin ETF has only been in existence for two months, it has attracted a substantial number of new investors. Recently, Purpose Investments announced that its Bitcoin ETF exceeded USD $1 billion of assets under management. Most likely, this trend will continue as United States investors patiently wait for the SEC to approve a Bitcoin ETF.

Why are Bitcoin ETFs so highly anticipated within the global investment community? Because both of these innovative products provide investors with an opportunity to own a completely new asset class by using a low-cost vehicle like an ETF. Let’s briefly review a few of the main features and characteristics of an ETF.

Low cost

In comparison to mutual funds, exchange-traded funds are much cheaper in terms of the fees investors are required to pay. For example, a typical mutual fund charges a wide variety of fees. The list includes management fees, 12b-1 fee, administrative fees, operating fees, trading fees, auditing fees, and legal fees. The list of fees is endless.

All of these mutual fund fees are added together to create an expense ratio, which represents the total cost paid by the investor to own shares of the mutual fund. It’s not uncommon for investors to pay 1.5% to 2.0% annually. The fees are even higher if the investor uses a financial advisor.

ETFs offer some of the lowest fees in the financial services industry. The average annual ETF fee is 0.4%. Many exchange-traded funds are lower than 0.4%. In fact, many ETFs to charge less than 0.1%. This explains why investors have moved a substantial portion of their investment dollars into ETFs during the past 20 years.

Liquidity

As we previously discussed, the dollar value of ETFs has increased substantially during the past decade. The current value of assets invested in ETFs is approximately USD $8 trillion. This provides investors with a tremendous amount of liquidity to buy and sell without affecting the price of the underlying ETF. The bid/ask spread for the average ETF is very tight because of liquidity.

Accessibility

Exchange-traded funds are available on many stock exchanges across the world. ETFs trade in the same format as stocks. They are quoted on a per share basis and can be bought or sold throughout each trading day. In terms of user experience, trading an ETF is exactly the same as trading a stock.

Transparency

Over the course of the past 20 years, the financial services industry has introduced a wide variety of new investment products to the global investment community. The majority of these products were released prior to the 2008 Global Financial Crisis.

Unfortunately, many individual investors, large institutions, and public pension plans found themselves locked in these opaque and highly complex investment products. When the financial markets began to unravel in late-2008, it became impossible for investors to liquidate their positions. Of course, this only exacerbated the financial crisis.

The financial crisis taught many investors to avoid highly sophisticated investments. This explains why there has been a large increase in ETF activity since 2009. ETFs are one of the most transparent investment products within the financial services industry because ETF providers openly communicate important information to investors in terms of how these products are structured. Consequently, investors have a much better experience participating in ETFs compared to other financial products.

Diversification

Exchange-traded funds are an excellent choice for investors who are attempting to diversify their portfolios. Unlike individual stocks or bonds, ETFs provide investors with the opportunity to select various sectors, industry groups, and geographic locations.

As of 2020, the total number of listed ETFs in the United States was 2,445. Investors can select from a number of different categories: stocks, bonds, commodities, currencies, real estate, and alternative assets. These various categories provide investors with a tremendous amount of diversification. This data is provided by ETF Database.

As you can see, exchange-traded funds provide investors with several excellent features. These features and characteristics are the main reason why investors find Bitcoin ETFs so attractive. It will be a low-cost way for investors to gain exposure to BTC. Due to regulatory constraints, many investors have been unable to purchase BTC through a traditional brokerage account. Therefore, Bitcoin ETFs will allow these investors to purchase BTC for the first time.

GBTC Is Not a Bitcoin ETF

In September 2013, Grayscale Investments launched the Grayscale Bitcoin Trust, which allowed accredited investors to gain exposure to BTC through a private placement offering. The minimum investment was USD $50,000. While this product is still actively managed, it is no longer accepting new investors.

In May 2015, Grayscale received approval from the Financial Industry Regulatory Authority (FINRA) to allow shares of the Grayscale Bitcoin Trust to trade publicly on the over-the-counter (OTC) market, using the ticker symbol GBTC. This allowed individual investors to buy and sell shares of GBTC through a traditional brokerage account.

During the past six years, GBTC has become an incredibly popular product within the Bitcoin community. Prior to the launch of Purpose Investments’ Bitcoin ETF in February, GBTC was the only way to invest in Bitcoin without purchasing BTC through a crypto brokerage account. GBTC exploded in popularity during the 2017 BTC bull market. In late-2020, GBTC experienced another wave of new money, as Bitcoin enjoyed a dramatic rally. As of March 31, GBTC has USD $45.6 billion of assets under management, making it one of the most popular investment products within the financial services industry.

Despite its popularity, many investors are under the impression that GBTC is an ETF. This is not true. Even though it trades on a regulated exchange like other ETFs, GBTC is officially an exchange-traded note (ETN). Essentially, an ETN is an unsecured debt instrument issued by a financial institution. In the case of GBTC, Grayscale Investments created the Grayscale Bitcoin Trust for the purpose of issuing the ETN.

Exchange-traded notes are designed to track an underlying index or security. In terms of GBTC, the underlying security is Bitcoin. When an investor buys GBTC, Grayscale purchases an equal amount of Bitcoin. The investor does not own the BTC. Instead, the BTC is held by Grayscale in the name of the trust.

Grayscale Bitcoin Trust was legally established as an investment trust, which means that the trust is a closed-end fund. The distinguishing characteristic of a closed-end fund is that it issues a limited number of shares when a new product is launched, like the Grayscale Bitcoin Trust. Therefore, GBTC has a limited number of shares that trade on the OTC exchange. These shares can trade at a discount or a premium to the underlying security, which is Bitcoin.

Consequently, it’s not uncommon for the share price of GBTC to trade in the opposite direction of Bitcoin. There are days when the price of Bitcoin rises while the share price of GBTC declines.

ETFs are a much better product because they are not structured like GBTC. Additionally, ETF fees are substantially lower compared to ETN fees. For example, the annual management fee for GBTC is 2.0%. As you know from our previous discussions, the average ETF fee is substantially lower than 2.0%.

Overall, a Bitcoin ETF is a much better product than GBTC. This explains why many investors are waiting to invest in Bitcoin until an ETF is launched in the United States. Most likely, Bitcoin ETFs will go down in the history books as one of the greatest investment products of the 21st century.

Digitex writers and/or guest authors may or may not have a vested interest in the Digitex project and/or other businesses mentioned throughout the site. None of the content on Digitex is investment advice nor is it a replacement for advice from a certified financial planner.

April 22, 2021
Digitex Futures
Digitex

Should You Invest in a Bitcoin ETF?

Dave Reiter
Should You Invest in a Bitcoin ETF? 2

The global investment community was introduced to exchange-traded funds (ETFs) on January 22, 1993, when State Street Global Advisors launched the SPDR S&P 500 ETF. It was designed to track the daily performance of the S&P 500 stock index. The State Street ETF immediately became a popular product among individual and institutional investors because it provided a low-cost approach to portfolio diversification.

Today, 28 years after its launch date, SPY remains one of the most heavily traded investment vehicles within the global financial services industry. It’s not uncommon for daily volume to exceed 100 million shares.

ETFs Gain Popularity Following the Dotcom Crash

During the past three decades, ETFs have exploded in popularity. However, they certainly did not become an overnight sensation. For the first 10 years of their existence, investors basically ignored ETFs because the industry did a poor job of marketing their products and communicating the benefits of owning exchange-traded funds.

Despite the fact that stocks had experienced a roaring bull market throughout the decade of the 1990s, most investors lost money by aggressively speculating in the “high flying” internet stocks. Therefore, by the early-2000s, investors were searching for a low-cost, diversified method for participating in the stock market. ETFs were the perfect solution.

In 2003, the size of the global ETF industry was USD $204.3 billion. Investments in ETFs have exploded during the past 18 years. In fact, with the exception of 2008, the value of exchange-traded funds has increased every year since 2003. In 2010, the ETF asset class reached its first major milestone by exceeding USD $1 trillion in market capitalization.

As you can see from the following table, investors have been pouring money into ETFs during the past decade. In fact, since 2010, the asset class has expanded by 489%. By 2023, the global market capitalization of exchange-traded funds is projected to be USD $12.0 trillion, making it one of the fastest-growing investment vehicles of all time. These numbers are based on data provided by Statista.

  • 2010 – USD $1.313 trillion
  • 2013 – USD $2.283 trillion
  • 2015 – USD $3.423 trillion
  • 2017 – USD $4.690 trillion
  • 2019 – USD $6.194 trillion
  • 2020 – USD $7.736 trillion

ETFs Viewed Through the Lens of Technological Innovation

For the past several decades, the financial services industry has been constantly criticized for its lack of innovation, particularly as it relates to technology. The industry has always been behind the curve in regard to technological innovation. In fact, technology improvements were practically non-existent for the majority of the 20th century.

However, in 1992, one of the most disruptive innovations in the history of financial services was unveiled when E*Trade introduced online trading. This new financial technology introduced millions of first-time traders to the stock market. For example, in 1995, only 300,000 investors in the United States had an online brokerage account. Five years later, in 2000, 11.3 million traders were participating in online trading. This represents a dramatic increase of 3,667%.

Is it simply a coincidence that exchange-traded funds were introduced to the investing public at precisely the same time as online trading? The short answer is, “no.” It’s not uncommon for innovative solutions to arrive in waves or clusters. An important new discovery (like online trading) usually lays the groundwork for other innovators to roll out new trailblazing technology (like ETFs).

In terms of its impact on the financial services industry, ETFs will go down in the history books as one of the most disruptive forces in comparison to other major industry groups. Please review the following list taken from data provided by the U.S. Census Bureau, Statista, BlackRock, and the International Federation of Robotics.

Annual Technology Adoption Rate Since 2009 (CAGR):

  • Smartphones – 24.3%
  • ETFs – 18.0%
  • Social media – 13.0%
  • Retail sales via e-commerce – 11.8%
  • Industrial robots – 10.9%

When most people view this list for the first time, they are shocked to discover how impactful ETFs have been on the financial services industry compared to major innovations across other industry groups. Exchange-traded funds have easily been one of the most disruptive forces of the past 50 years.

Two Disruptive Technologies Join Forces: Bitcoin and ETFs

Bitcoin was launched by Satoshi Nakamoto on January 3, 2009. The early years of Bitcoin (BTC) were very similar to exchange-traded funds. Investors were not the least bit interested in learning about the benefits of owning BTC, which is exactly the same type of reception received by ETFs. It’s not uncommon for people to ignore new discoveries, particularly technological discoveries.

As a general rule, people prefer to avoid disruptive innovations because they don’t like daily changes to their routine. This explains why it takes several years for some of the best discoveries to reach mainstream adoption.

As we previously mentioned, ETFs exploded in popularity beginning in the early-2000s, as investors discovered the benefits of owning exchange-traded funds. It took 17 years for ETFs to reach USD $1 trillion in market capitalization. Bitcoin achieved the same level in 12 years. In fact, BTC became the fastest asset class to reach USD $1 trillion in market capitalization. Most likely, Bitcoin will eventually exceed the asset level of ETFs, which currently stands at approximately USD $8 trillion.

During the past few years, several investment firms have attempted to gain regulatory approval for a Bitcoin ETF. In the United States, the Securities and Exchange Commission (SEC) has not yet approved any Bitcoin ETF application.

However, Canadian regulators provided clearance to Purpose Investments Inc by allowing the investment company to become the world’s first Bitcoin ETF. The official launch date was February 18, 2021. Although the Bitcoin ETF has only been in existence for two months, it has attracted a substantial number of new investors. Recently, Purpose Investments announced that its Bitcoin ETF exceeded USD $1 billion of assets under management. Most likely, this trend will continue as United States investors patiently wait for the SEC to approve a Bitcoin ETF.

Why are Bitcoin ETFs so highly anticipated within the global investment community? Because both of these innovative products provide investors with an opportunity to own a completely new asset class by using a low-cost vehicle like an ETF. Let’s briefly review a few of the main features and characteristics of an ETF.

Low cost

In comparison to mutual funds, exchange-traded funds are much cheaper in terms of the fees investors are required to pay. For example, a typical mutual fund charges a wide variety of fees. The list includes management fees, 12b-1 fee, administrative fees, operating fees, trading fees, auditing fees, and legal fees. The list of fees is endless.

All of these mutual fund fees are added together to create an expense ratio, which represents the total cost paid by the investor to own shares of the mutual fund. It’s not uncommon for investors to pay 1.5% to 2.0% annually. The fees are even higher if the investor uses a financial advisor.

ETFs offer some of the lowest fees in the financial services industry. The average annual ETF fee is 0.4%. Many exchange-traded funds are lower than 0.4%. In fact, many ETFs to charge less than 0.1%. This explains why investors have moved a substantial portion of their investment dollars into ETFs during the past 20 years.

Liquidity

As we previously discussed, the dollar value of ETFs has increased substantially during the past decade. The current value of assets invested in ETFs is approximately USD $8 trillion. This provides investors with a tremendous amount of liquidity to buy and sell without affecting the price of the underlying ETF. The bid/ask spread for the average ETF is very tight because of liquidity.

Accessibility

Exchange-traded funds are available on many stock exchanges across the world. ETFs trade in the same format as stocks. They are quoted on a per share basis and can be bought or sold throughout each trading day. In terms of user experience, trading an ETF is exactly the same as trading a stock.

Transparency

Over the course of the past 20 years, the financial services industry has introduced a wide variety of new investment products to the global investment community. The majority of these products were released prior to the 2008 Global Financial Crisis.

Unfortunately, many individual investors, large institutions, and public pension plans found themselves locked in these opaque and highly complex investment products. When the financial markets began to unravel in late-2008, it became impossible for investors to liquidate their positions. Of course, this only exacerbated the financial crisis.

The financial crisis taught many investors to avoid highly sophisticated investments. This explains why there has been a large increase in ETF activity since 2009. ETFs are one of the most transparent investment products within the financial services industry because ETF providers openly communicate important information to investors in terms of how these products are structured. Consequently, investors have a much better experience participating in ETFs compared to other financial products.

Diversification

Exchange-traded funds are an excellent choice for investors who are attempting to diversify their portfolios. Unlike individual stocks or bonds, ETFs provide investors with the opportunity to select various sectors, industry groups, and geographic locations.

As of 2020, the total number of listed ETFs in the United States was 2,445. Investors can select from a number of different categories: stocks, bonds, commodities, currencies, real estate, and alternative assets. These various categories provide investors with a tremendous amount of diversification. This data is provided by ETF Database.

As you can see, exchange-traded funds provide investors with several excellent features. These features and characteristics are the main reason why investors find Bitcoin ETFs so attractive. It will be a low-cost way for investors to gain exposure to BTC. Due to regulatory constraints, many investors have been unable to purchase BTC through a traditional brokerage account. Therefore, Bitcoin ETFs will allow these investors to purchase BTC for the first time.

GBTC Is Not a Bitcoin ETF

In September 2013, Grayscale Investments launched the Grayscale Bitcoin Trust, which allowed accredited investors to gain exposure to BTC through a private placement offering. The minimum investment was USD $50,000. While this product is still actively managed, it is no longer accepting new investors.

In May 2015, Grayscale received approval from the Financial Industry Regulatory Authority (FINRA) to allow shares of the Grayscale Bitcoin Trust to trade publicly on the over-the-counter (OTC) market, using the ticker symbol GBTC. This allowed individual investors to buy and sell shares of GBTC through a traditional brokerage account.

During the past six years, GBTC has become an incredibly popular product within the Bitcoin community. Prior to the launch of Purpose Investments’ Bitcoin ETF in February, GBTC was the only way to invest in Bitcoin without purchasing BTC through a crypto brokerage account. GBTC exploded in popularity during the 2017 BTC bull market. In late-2020, GBTC experienced another wave of new money, as Bitcoin enjoyed a dramatic rally. As of March 31, GBTC has USD $45.6 billion of assets under management, making it one of the most popular investment products within the financial services industry.

Despite its popularity, many investors are under the impression that GBTC is an ETF. This is not true. Even though it trades on a regulated exchange like other ETFs, GBTC is officially an exchange-traded note (ETN). Essentially, an ETN is an unsecured debt instrument issued by a financial institution. In the case of GBTC, Grayscale Investments created the Grayscale Bitcoin Trust for the purpose of issuing the ETN.

Exchange-traded notes are designed to track an underlying index or security. In terms of GBTC, the underlying security is Bitcoin. When an investor buys GBTC, Grayscale purchases an equal amount of Bitcoin. The investor does not own the BTC. Instead, the BTC is held by Grayscale in the name of the trust.

Grayscale Bitcoin Trust was legally established as an investment trust, which means that the trust is a closed-end fund. The distinguishing characteristic of a closed-end fund is that it issues a limited number of shares when a new product is launched, like the Grayscale Bitcoin Trust. Therefore, GBTC has a limited number of shares that trade on the OTC exchange. These shares can trade at a discount or a premium to the underlying security, which is Bitcoin.

Consequently, it’s not uncommon for the share price of GBTC to trade in the opposite direction of Bitcoin. There are days when the price of Bitcoin rises while the share price of GBTC declines.

ETFs are a much better product because they are not structured like GBTC. Additionally, ETF fees are substantially lower compared to ETN fees. For example, the annual management fee for GBTC is 2.0%. As you know from our previous discussions, the average ETF fee is substantially lower than 2.0%.

Overall, a Bitcoin ETF is a much better product than GBTC. This explains why many investors are waiting to invest in Bitcoin until an ETF is launched in the United States. Most likely, Bitcoin ETFs will go down in the history books as one of the greatest investment products of the 21st century.

Digitex writers and/or guest authors may or may not have a vested interest in the Digitex project and/or other businesses mentioned throughout the site. None of the content on Digitex is investment advice nor is it a replacement for advice from a certified financial planner.

Latest News

The Month In Review: Analyzing The Cryptocurrency Markets For May 3

The Month In Review: Analyzing The Cryptocurrency Markets For May

Crypto Industry
• Dave Reiter
May 30, 2020

Cryptocurrencies have a reputation for being volatile but the month of May has bucked the trend, finishing up rather uneventful. Despite the “big news” of the Bitcoin halving on 11 May, the major cryptos turned in a mediocre performance for the month. Furthermore, Goldman Sachs have been causing uproar in the crypto community this week. This month’s roundup looks at recent events and what it could mean for the future of crypto. 

As you can see from the table, approximately 50% of the coins generated a positive rate of return. The remaining coins generated small losses. NEO was the leader of the pack, with a solid monthly gain of 16.3%.

The Month In Review: Analyzing The Cryptocurrency Markets For May 4

Will Cryptocurrencies Ever Become A Major Asset Class?

Firstly, what is an asset class? It is a group of financial instruments that share similar financial characteristics and behave similarly in the global marketplace. From a broad macro perspective, these financial instruments are divided between real assets and financial assets. 

Real assets consist of commodities and real estate. Financial assets consist of stocks, bonds and cash. Therefore, there are a total of five major asset classes. 

During the past few years, an increasing number of have investors have argued that cryptocurrencies should be listed as a major asset class within the realm of financial assets. Their argument is based on the fact that cryptocurrencies are playing an ever-increasing role in the global investment ecosystem. However, this week, Goldman Sachs made waves in the cryptocurrencies universe as they declared on an investor call that “cryptocurrencies are not an asset class.”

However, there are legitimate reasons why cryptocurrencies have a valid place among other asset classes. Let’s discuss the details.

Without question, the crypto universe has experienced unprecedented growth during the past decade. In terms of Bitcoin market capitalization, the rate of growth has been staggering. Take a look at the market cap of BTC from 2013 through 2020. 

Bitcoin Market Capitalization (Source: Statista):

  • Q1 2013 – $1.02 USD billion
  • Q1 2014 – $5.75 USD billion
  • Q1 2015 – $3.40 USD billion
  • Q1 2016 – $6.41 USD billion
  • Q1 2017 – $17.56 USD billion
  • Q1 2018 – $117.56 USD billion
  • Q1 2019 – $72.34 USD billion
  • Q1 2020 – $117.81 USD billion

During the past seven years, the market capitalization of Bitcoin has increased 11,450%. From a historical perspective, this represents the largest percentage move compared to any other asset class over a 7-year period. 

How does the market capitalization of cryptocurrencies compare with other major asset classes? Well, check out the following data compiled from Bloomberg, Savills PLC, Futures Industry Association and Federal Reserve System.    

Market Capitalization Of Asset Classes  

  • Global Real Estate – $228 trillion
  • Global Bond Market – $102.8 trillion
  • Global Bank Deposits (cash) – $86.5 trillion
  • Global Stock Market – $67.5 trillion
  • Global Commodities – $33.6 trillion

As you can see from the data, the market cap of Bitcoin is tiny compared to the other major asset classes. In fact, even if we include the market cap of all cryptocurrencies ($263.9 billion), the values are not even close. Cryptocurrencies are less than 1% the size of the smallest major asset class, commodities. 

Size isn’t Everything

The relative size of the crypto universe should not be the only determining factor when deciding if cryptocurrencies should be listed as a major asset class. In addition to market cap, another important factor is asset correlation. For example, do cryptos move in the same direction as the other major asset classes? A lack of correlation was one of the key arguments put forward by Goldman Sachs in the recent controversial investor call. 

Based on historical results over the course of the past decade, the answer is “No.” Cryptocurrencies have a tendency to move independently of stocks, bonds, commodities, and real estate. Asset correlation is a very important determining factor because it provides investors with the opportunity to diversify their investment portfolios. However, it’s worth bearing in mind that gold derives a large part of its value precisely because it has an inverse relationship with other asset classes. 

The Reach of Crypto is its Biggest Selling Point 

Arguably, the most important factor in determining the suitability of cryptocurrencies as a major asset class is availability. Are cryptocurrencies available to the global investment community? Can investors from all over the world buy and sell cryptocurrencies? Generally speaking, the answer is “Yes.” 

In fact, in terms of accessibility, cryptocurrencies have a longer global reach than stocks, bonds, or commodities. It’s much easier for people in developing countries to purchase cryptocurrencies in comparison to stocks, bonds, and commodities. 

Why? Because cryptocurrencies are decentralized. They are not linked to centralized exchanges or legacy financial systems. This is a huge “plus” for cryptocurrencies, as it means they’re more likely to become adopted by people in demographical groups who are traditionally excluded from investing in other asset classes.   

Recognizing cryptocurrencies as a major asset class would be incredibly bullish for Bitcoin, because it would encourage institutional investors, pension funds, family offices, and endowments to become crypto investors. 

For the most part, institutional money has remained on the sidelines in regard to cryptocurrencies. Large institutional investors and high net worth individuals have basically ignored Bitcoin and other cryptocurrencies as a legitimate investment vehicle. But the attitude of the global investment community will completely change if cryptocurrencies are classified as a major asset class. 

Based on the continued growth rate of Bitcoin and other cryptocurrencies, it’s surely only a matter of time before Goldman Sachs is proved wrong, and digital assets take their place among other major asset classes.      

Driving Demand is Key to Growth       

If, and when, the global investment community decides to stop resisting the growth of cryptocurrencies, Digitex will be ready. We’re continuing to onboard new traders to our state-of-the art, zero-fee trading platform. 

But this is just the beginning of the Digitex journey. We’re committed to developing the markets, features, and liquidity of our exchange, but more importantly, to driving demand for the DGTX token. The greater the demand, the bigger the value, and the better the chances that cryptocurrencies will receive the recognition they deserve from the global investment community. 

 

Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice nor is it a replacement for advice from a certified financial planner.

 

 

 

 

May 30, 2020
Crypto Industry

The Month In Review: Analyzing The Cryptocurrency Markets For May

Dave Reiter
The Month In Review: Analyzing The Cryptocurrency Markets For May 5

Cryptocurrencies have a reputation for being volatile but the month of May has bucked the trend, finishing up rather uneventful. Despite the “big news” of the Bitcoin halving on 11 May, the major cryptos turned in a mediocre performance for the month. Furthermore, Goldman Sachs have been causing uproar in the crypto community this week. This month’s roundup looks at recent events and what it could mean for the future of crypto. 

As you can see from the table, approximately 50% of the coins generated a positive rate of return. The remaining coins generated small losses. NEO was the leader of the pack, with a solid monthly gain of 16.3%.

The Month In Review: Analyzing The Cryptocurrency Markets For May 6

Will Cryptocurrencies Ever Become A Major Asset Class?

Firstly, what is an asset class? It is a group of financial instruments that share similar financial characteristics and behave similarly in the global marketplace. From a broad macro perspective, these financial instruments are divided between real assets and financial assets. 

Real assets consist of commodities and real estate. Financial assets consist of stocks, bonds and cash. Therefore, there are a total of five major asset classes. 

During the past few years, an increasing number of have investors have argued that cryptocurrencies should be listed as a major asset class within the realm of financial assets. Their argument is based on the fact that cryptocurrencies are playing an ever-increasing role in the global investment ecosystem. However, this week, Goldman Sachs made waves in the cryptocurrencies universe as they declared on an investor call that “cryptocurrencies are not an asset class.”

However, there are legitimate reasons why cryptocurrencies have a valid place among other asset classes. Let’s discuss the details.

Without question, the crypto universe has experienced unprecedented growth during the past decade. In terms of Bitcoin market capitalization, the rate of growth has been staggering. Take a look at the market cap of BTC from 2013 through 2020. 

Bitcoin Market Capitalization (Source: Statista):

  • Q1 2013 – $1.02 USD billion
  • Q1 2014 – $5.75 USD billion
  • Q1 2015 – $3.40 USD billion
  • Q1 2016 – $6.41 USD billion
  • Q1 2017 – $17.56 USD billion
  • Q1 2018 – $117.56 USD billion
  • Q1 2019 – $72.34 USD billion
  • Q1 2020 – $117.81 USD billion

During the past seven years, the market capitalization of Bitcoin has increased 11,450%. From a historical perspective, this represents the largest percentage move compared to any other asset class over a 7-year period. 

How does the market capitalization of cryptocurrencies compare with other major asset classes? Well, check out the following data compiled from Bloomberg, Savills PLC, Futures Industry Association and Federal Reserve System.    

Market Capitalization Of Asset Classes  

  • Global Real Estate – $228 trillion
  • Global Bond Market – $102.8 trillion
  • Global Bank Deposits (cash) – $86.5 trillion
  • Global Stock Market – $67.5 trillion
  • Global Commodities – $33.6 trillion

As you can see from the data, the market cap of Bitcoin is tiny compared to the other major asset classes. In fact, even if we include the market cap of all cryptocurrencies ($263.9 billion), the values are not even close. Cryptocurrencies are less than 1% the size of the smallest major asset class, commodities. 

Size isn’t Everything

The relative size of the crypto universe should not be the only determining factor when deciding if cryptocurrencies should be listed as a major asset class. In addition to market cap, another important factor is asset correlation. For example, do cryptos move in the same direction as the other major asset classes? A lack of correlation was one of the key arguments put forward by Goldman Sachs in the recent controversial investor call. 

Based on historical results over the course of the past decade, the answer is “No.” Cryptocurrencies have a tendency to move independently of stocks, bonds, commodities, and real estate. Asset correlation is a very important determining factor because it provides investors with the opportunity to diversify their investment portfolios. However, it’s worth bearing in mind that gold derives a large part of its value precisely because it has an inverse relationship with other asset classes. 

The Reach of Crypto is its Biggest Selling Point 

Arguably, the most important factor in determining the suitability of cryptocurrencies as a major asset class is availability. Are cryptocurrencies available to the global investment community? Can investors from all over the world buy and sell cryptocurrencies? Generally speaking, the answer is “Yes.” 

In fact, in terms of accessibility, cryptocurrencies have a longer global reach than stocks, bonds, or commodities. It’s much easier for people in developing countries to purchase cryptocurrencies in comparison to stocks, bonds, and commodities. 

Why? Because cryptocurrencies are decentralized. They are not linked to centralized exchanges or legacy financial systems. This is a huge “plus” for cryptocurrencies, as it means they’re more likely to become adopted by people in demographical groups who are traditionally excluded from investing in other asset classes.   

Recognizing cryptocurrencies as a major asset class would be incredibly bullish for Bitcoin, because it would encourage institutional investors, pension funds, family offices, and endowments to become crypto investors. 

For the most part, institutional money has remained on the sidelines in regard to cryptocurrencies. Large institutional investors and high net worth individuals have basically ignored Bitcoin and other cryptocurrencies as a legitimate investment vehicle. But the attitude of the global investment community will completely change if cryptocurrencies are classified as a major asset class. 

Based on the continued growth rate of Bitcoin and other cryptocurrencies, it’s surely only a matter of time before Goldman Sachs is proved wrong, and digital assets take their place among other major asset classes.      

Driving Demand is Key to Growth       

If, and when, the global investment community decides to stop resisting the growth of cryptocurrencies, Digitex will be ready. We’re continuing to onboard new traders to our state-of-the art, zero-fee trading platform. 

But this is just the beginning of the Digitex journey. We’re committed to developing the markets, features, and liquidity of our exchange, but more importantly, to driving demand for the DGTX token. The greater the demand, the bigger the value, and the better the chances that cryptocurrencies will receive the recognition they deserve from the global investment community. 

 

Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice nor is it a replacement for advice from a certified financial planner.

 

 

 

 

Latest News

The Digitex Futures Treasury Update -- How We’re Doing So Far 7

The Digitex Futures Treasury Update — How We’re Doing So Far

Digitex Futures
• Christina Comben
March 20, 2019

We saw mixed reactions from the community when we announced the Digitex Treasury at the start of the year. However, as more of you began to realize that it was legitimate, transparent, and a solid way of financing our exchange into the future, we couldn’t be happier with the response. Let’s take a look at how the Digitex Treasury is going now almost three weeks after the first token sale launched. Continue reading

March 20, 2019
Digitex Futures

The Digitex Futures Treasury Update — How We’re Doing So Far

Christina Comben
The Digitex Futures Treasury Update -- How We’re Doing So Far 8

We saw mixed reactions from the community when we announced the Digitex Treasury at the start of the year. However, as more of you began to realize that it was legitimate, transparent, and a solid way of financing our exchange into the future, we couldn’t be happier with the response. Let’s take a look at how the Digitex Treasury is going now almost three weeks after the first token sale launched. Continue reading

Latest News

Cryptocurrencies: Trading Vs Investing in Futures 9

Cryptocurrencies: Trading Vs Investing in Futures

Digitex Futures
• Dave Reiter
January 21, 2019

In the world of financial speculation, there are two types of participants: traders and investors. Decades of historical results have proven that it’s very difficult for a person to be both a great trader and a great investor, virtually impossible, in fact. It’s actually quite rare to successfully conquer even one category. Let’s take a look at trading vs investing and whether it’s possible to be both a trader and investor. Continue reading

January 21, 2019
Digitex Futures

Cryptocurrencies: Trading Vs Investing in Futures

Dave Reiter
Cryptocurrencies: Trading Vs Investing in Futures 10

In the world of financial speculation, there are two types of participants: traders and investors. Decades of historical results have proven that it’s very difficult for a person to be both a great trader and a great investor, virtually impossible, in fact. It’s actually quite rare to successfully conquer even one category. Let’s take a look at trading vs investing and whether it’s possible to be both a trader and investor. Continue reading

Latest News