It probably won’t come from the diehard crypto crowd. They’re already invested, and they hold their Bitcoin via digital wallets, cold storage devices or accounts at exchanges like Coinbase or Binance.
If there is a steady flow of new funds approaching, it could well come from more traditional investors.
This group already has an investment portfolio with a wealth management firm or fund manager.
They like having all their wealth in one place with their trusted adviser, and the last thing they want is separate accounts elsewhere.
They’re also put off by the need to maintain a digital wallet, which has an air of vulnerability about it and doesn’t feel as secure, in the eyes of this group.
An ETF, however, is something familiar that would offer much more peace of mind.
Most of us own a few of those already — they’re easy to buy and sell, and they sit nicely alongside shares, bonds and other assets in a portfolio report.
Just to be clear, I don’t believe Bitcoin is an essential ingredient in a portfolio. Crypto isn’t for everyone, and many investors will be more than happy to continue with the traditional approach and leave it out.
However, there are many investors who will be interested in holding a small amount.
Some will genuinely believe in the concept, while others will simply want to cover their bases with a small allocation.
Even if a small fraction of the US$250 trillion in global financial assets finds its way into these new assets, the inflows could be significant.
While these new ETFs are likely to expand investor interest in Bitcoin, it won’t necessarily ensure prices go consistently higher.
Those who got on the bandwagon early have done extremely well, but it’s been a rollercoaster along the way.
There have been several major corrections. Bitcoin prices fell 83 per cent in 2018, 61 per cent in 2020, 53 per cent in 2021, and 77 per cent in 2022.
The price slumped 15 per cent after these ETFs were approved a month ago and at about US$43,000, the price is still more than a third below the all-time high of US$68,000 from November 2021.
It’s easy to see why many people remain sceptical.
You can’t use Bitcoin in most traditional shops, it doesn’t have any industrial use like a commodity, and it doesn’t generate any return or yield like a traditional investment.
This makes it difficult to put any sort of fundamental valuation on it.
Detractors would argue the greater-fool theory applies, which means the only reason prices will go up is because there’s an even bigger fool who might buy it from you at some point.
But for many people the value is in the fact it is a form of self-custodial, liquid, portable money that can’t be debased or confiscated by the state.
Those attributes aren’t of huge importance in many countries, but savers in the likes of Argentina, Russia or Turkey might see some appeal after what they’ve experienced in recent decades.
Supporters also like the fact it has a fixed supply. We don’t know how many US or New Zealand dollars there will be in the world in a decade, but we know how many Bitcoins there will be.
The approval of Bitcoin ETFs is indeed an important milestone, and there’s a good chance they have further success, in terms of funds flow at least.
For those looking to dip their toes into the world of crypto investing, these will hold much more appeal than previous options.
My advice would be to remember the usual investment guidelines and if you do choose to get involved, keep any allocations small and don’t go overboard.
Mark Lister is investment director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision, Craigs Investment Partners recommends you contact an investment adviser.
