This marks the one-year anniversary of curating the Crypto for Advisor newsletter. Time flies when you are having fun, and it’s hard to believe there are 52 issues under my belt. Thanks to CoinDesk and particularly Kim Klemballa for giving me this opportunity along with all of our valued newsletter contributors. Our contributors spend their time building this industry, and their contributions are invaluable. As we continue our crypto journey together, I hope to see new contributors and continued engagement with ideas and topics as we strive to deliver advisor education globally. Your educational needs, views, and opinions shape this newsletter – as it is truly Crypto for advisors!
The past couple of years have been challenging in the crypto space, but 2024 has brought excitement and energy back. We are seeing many exciting product launches and regulatory advancements. I look forward to providing content to our valued audience and keeping them informed of timely and relevant developments.
In today’s issue, André Dragosch, head of research at ETC Group, discusses the volatility of crypto assets, including bitcoin and ether, and how they compare to other emerging technology investments. Bryan Courchesne, CEO of DAIM, explains how advisors can navigate the volatility of crypto within client portfolios.
Happy Independence Day to our American readers.
Traditional financial investors tend to avoid crypto assets due to their high volatility. The volatility of crypto assets is relatively high compared to traditional asset classes such as equities, bonds, and most commodities. Over the past three months, the annualized volatility of bitcoin and ether has been around 45% to 50%, respectively, while the S&P 500’s volatility was around 15%.
A recent survey by Fidelity among institutional investors identified high volatility as the No. 1 most-cited barrier keeping investors from allocating to crypto assets. However, high returns come with high risks, i.e., volatility. Where there is growth, there is volatility. Most equity investors understand this concept, as high-growth mega-cap stocks tend to have high double-digit volatility.
The future of crypto assets remains uncertain, leading to volatility. Uncertainty tends to create volatility in the market. The history of Amazon provides important lessons in this regard. In the late 1990s, analysts were uncertain about online retailing’s future, leading to high volatility in Amazon’s stock. However, as uncertainty decreased, Amazon’s volatility also declined over time.
Similarly, the volatility of crypto assets is expected to decrease over time. Factors such as bitcoin’s scarcity increasing with every halving and increasing adoption of this technology are likely to decrease volatility structurally over time.
Advisors can help clients navigate crypto volatility by creating well-balanced portfolios that include less correlated assets. Diversification is key in creating a portfolio that can deliver long-term results. Including assets with low correlation to traditional assets, such as crypto, can help decrease overall portfolio volatility and provide long-term wealth for investors.
In conclusion, while crypto assets may be volatile, they should be viewed in the context of how they can help create a truly diversified portfolio. The future of crypto assets is promising, and with the right approach, advisors can help clients navigate the volatility and benefit from the growth potential of this emerging asset class.
Revised spot Ether ETF date: the U.S. SEC has requested issuers submit revised filings by July 8. Will Solana ETFs be available next? On June 28, 21Shares filed an S-1 application with the U.S. SEC for a spot Solana (ETF). Bitcoin ETFs saw the largest inflows since June 7, with Fidelity leading at $65 million.
Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.