Crypto culture encourages investors to “HODL” or hold on for dear life within the rollercoaster ride of Bitcoin's extreme fluctuations.
But this long-valued practice may develop into less essential as ETFs develop into more widely available, especially as traditional investors who’re accustomed to repeatedly rebalancing their portfolios construct up Bitcoin exposure.
The cryptocurrency has develop into increasingly institutionalized in recent times, and for the reason that launch of exchange-traded funds this yr that track the value of Bitcoin, this trend is predicted to accentuate – especially as various wirehouses, brokerages and advisors begin to offer their clients with access to the ETFs.
“There are so many people in this community who are just diamond dealers,” said Donald Marron, director of economic policy initiatives on the Urban Institute, this week on the 2024 Vision conference in Austin, Texas. “If you convince them to buy 1% [to bitcoin] today… and never touch it, you would experience tremendous wealth gains if you were on the path to a much higher Bitcoin price.”
“If you might have people who find themselves actually doing what I consider traditional asset allocation, they're going to be faced with the query every quarter, every month, yearly of whether to rebalance,” he added. “From a risk management perspective, rebalancing is a very good thing. But rebalancing also means they're going to be sellers on this journey.”
At some point, everyone HODLers is turning to sellers, according to Julio Moreno, head of research at CryptoQuant. Currently, as is common in bull markets, long-term holders are selling after accumulating Bitcoin during the bear market.
Matt Hougan, chief investment officer at Bitwise Asset Management, the issuer of the Bitwise Bitcoin ETF (BITB), said investors should treat bitcoin “like any other asset… put it in a portfolio and factor in the rebalancing process” – referring to bitcoin’s traditional four-year cycle of three good years followed by one bad year.
“Bitcoin has boom and bust cycles,” he said at the Vision Conference, a crypto investment forum for advisors hosted by the Digital Assets Council of Financial Professionals. “When you rebalance your portfolio, the impact on Sharpes and other metrics increases dramatically.”
Sharpe ratios help investors assess the return on an investment in relation to the risk taken.
Rebalancing could help dampen Bitcoin's notorious volatility – one of the main reasons many investors stay away from the asset, says Michael Allegue, investment advisor at MassMutual.
“As more institutional capital is available in, there’s the potential for volatility to dampen as many other firms, including us, will likely rebalance their accounts – they’ll not only go buy and hold,” Allegue said.
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