Welcome to the 'Bitcoin Era' on Wall Street
With the introduction of bitcoin ETFs, Wall Street is entering a new era of bitcoin investments. As companies launch their own ETFs, they will need to find ways to differentiate their products.
Wall Street's Approach to Bitcoin ETFs
After much delay, spot bitcoin exchange-traded funds (ETFs) have emerged as a significant investment opportunity. BlackRock's IBIT has already become the fifth largest ETF by inflows this year, with other rival funds not far behind. While it remains to be seen if this rate of growth can match the bullish predictions for the end-of-year valuations, it is clear that bitcoin ETFs are here to stay.
The question now is how Wall Street will approach this new way of gaining bitcoin exposure, and if regular investors will be interested in getting involved. According to Mike Willis, CEO and founder of ONEFUND, bitcoin could potentially become one of the most talked-about brands on Wall Street in the coming decade. Willis believes that bitcoin has the potential to catch up to gold's market cap.
ONEFUND, an independent index fund operation known for its S&P 500 tracking ETF, plans to launch a series of 'Cyber Hornet' funds that combine bitcoin and traditional equities. This strategy aims to attract risk-averse retail investors who may be hesitant to invest solely in bitcoin.
Investor Concerns and Differentiation Strategies
While wealth managers generally recommend allocating only 1%-3% to crypto, even this small allocation can expose financial advisers to legal risks. Willis explains that most investors are not accustomed to the large price swings associated with cryptocurrencies, and significant losses can lead to potential lawsuits. The challenge for advisers is to find a balance between bitcoin exposure and risk management.
To mitigate bitcoin's volatility, some ETFs, like the one closest to launch under the ticker ZZZ, allocate a significant portion of their capital to the S&P index. This helps to offset potential downside risks. Willis also predicts the emergence of hybrid funds that use less risky asset classes like U.S. Treasuries to further protect against volatility. These strategies will be crucial for funds to differentiate themselves in an increasingly crowded market.
In addition to low management fees, companies can compete by how they handle the bitcoin bought with investors' money. Some funds may choose to loan out the bitcoins to earn a return, while others may opt to hold them in cold storage. ONEFUND intends to guarantee that the bitcoins it holds will remain in cold storage, allowing them to charge higher rates for their ETFs.
Building a Bitcoin Community on Wall Street
While many firms are trying to lower fees or offer promotions to attract investors, ONEFUND is taking a different approach. They aim to tap into the loyalty and camaraderie of the bitcoin community. By using branding like the 'Cyber Hornet' and securing unique tickers for their ETFs, ONEFUND hopes to differentiate itself and appeal to bitcoiners who want to stay within the community.
Willis believes that Wall Street's involvement in bitcoin ETFs is not the most conventional way to onboard people into the bitcoin economy, but it is the easiest and safest route. As more and more capital flows into bitcoin through ETFs, it will ultimately become a mainstream asset class.
While the entrance of Wall Street may represent a departure from the traditional decentralized nature of bitcoin, Willis sees it as a necessary step for mass adoption. He believes that this step will change the perception of bitcoin on Wall Street and transform it into a significant investment opportunity.
