There are still investment opportunities after the fall of FTX
Crypto investors still have plenty to be thankful for as 2022 draws to a close – but it’s hard to ignore the obvious…
That being the collapse of the FTX crypto exchange and the contagion that it continues to spread in the industrymade evident this week when crypto lender BlockFi declared bankruptcy.
Of course, we must take note that BlockFi’s difficulties are not at all unexpected as the company has begun to downsize, with its value plummeting by more than 66% earlier this year. FTX’s collapse was just a nail in the struggling company’s coffin.
That said, those of us who are seasoned investors know that often times of greatest calamity provide some of the best investment opportunities.
In addition to seeking advice on how to protect and store their own digital assets amid the chaos, the crypto-curious clientele of financial advisors is surely interested in hearing about these opportunities – but where are they?
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One likely source of opportunity is already tapped by high-profile investors like Cathie Wood, chief investment officer of technology-focused ARK Investment Management: crypto funds.
The Grayscale Bitcoin Trust (GBTC) has been trading for up to 45% off its net asset value in recent weeks. (Grayscale is a sister company to CoinDesk.) Several other closed and open crypto funds are trading at similarly steep discounts.
Read more: Cathie Wood’s Ark Invest Buys $1.5M in Grayscale Bitcoin Trust Stock
If one is confident enough that the value of the digital assets held by these funds will begin to rise again, then buying funds at such a large discount could be the rough equivalent of buying a dollar for 55 cents.
Of course, there is no guarantee that these funds will trade at a premium to their assets – or even reach face value in the future – but most financial assets show some level of mean reversion. .
Options and Futures
Another potential option for crypto-curious investors looking for a little safety: options, according to emailed comments Simeon Hyman, global investment strategist at exchange-traded fund (ETF) issuer Proshares Investments.
“Bitcoin futures-linked ETFs, such as ProShares Bitcoin Strategy ETF (BITO) and ProShares Short Bitcoin Strategy ETF (BITI), offer a belt-and-braces approach,” Hyman wrote. “They use regulated futures to gain exposure to bitcoin-related returns, and they do so in the efficient, regulated package of an ETF.”
Hyman noted that ProShares bitcoin futures ETFs were trading with tight spreads and little deviation from their net asset value, despite recent volatility in crypto asset prices.
Read more: Everything you need to know about Bitcoin ETFs
Major institutions, including large pension funds like the Ontario Teachers’ Pension Plan and private investment specialists like Sequoia Capital, are writing off millions of dollars of investments in FTX.
As a result of these tax deductions, there should be a bit of a chill in institutional investing in the crypto space, as public pensions in particular are scrutinized for their allowances. This cold is also affecting retail investors frightened by the disappearance of symbolic prices and the wave of bankruptcy filings.
Publicly traded crypto stocks such as Coinbase Global (COIN), operator of crypto exchange Coinbase, have seen a nearly 90% drop in value from their 52-week high. While many crypto stocks may have been overvalued during the digital gold rush by retail investors, stock pickers today may find opportunities for valuation expansion in certain companies.
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Or, you know, just buy the tokens
Despite the recent slump in token prices, growing uncertainty about their future trajectory, and even doubts about the long-term viability of current crypto tokens, it might not be such a bad idea to buy the tokens themselves, according to recent research. of the CFA Institute.
Over the past 12-18 months, crypto critics have seized on growing token price correlations with US equity indices, especially large-cap indexes like the S&P 500 and sector funds like XLK, iShares ETF covering the US technology sector.
The CFA Institute, researching asset prices over the past three years, has allayed some of these concerns by finding that five of the biggest crypto tokens – BTC, ETH, LTC, XRP and ADA – have relatively low correlations compared to to a full range of actions. style indices and sector ETFs. Although the correlation is always positive – when the indices go up or down, the tokens follow the same direction – it is not a one-to-one correlation.
“The low positive correlation of cryptocurrencies with mutual funds and ETFs may indicate an increase in cross-market trading and signal the growing popularity of crypto,” the CFA Institute researchers wrote.
“Additionally, in a rising interest rate environment and amid the reduced efficiency of the traditional 60/40 stock/bond portfolio, crypto’s low correlation to traditional assets may offer potential benefits from diversification for long-term investors who can withstand increased short-term volatility. However, not all cryptocurrencies display the same lack of correlation with traditional assets, so investors need to be discerning about which ones they target.
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