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Cryptocurrency’s culture encourages investors to “HODL,” or hang on during the roller-coaster ride. Bitcoinviolent fluctuations.
But as ETFs gain popularity, this long-heralded practice may diminish, especially if traditional investors accustomed to rebalancing their portfolios regularly increase their exposure to Bitcoin.
Cryptocurrencies have become increasingly institutionalized in recent years, and since the launch of exchange-traded funds tracking the price of Bitcoin this year, the trend is expected to increase — especially as different brokerage firms, brokerage firms, and advisors begin Allow customers to access ETFs.
“There are a lot of people in this community who are diamond holders,” Donald Malone, director of the Economic Policy Initiative at the Urban Institute, said this week at the Vision 2024 conference in Austin, Texas. “If you convince them to allocate 1% today (Bitcoin)…and never touch it, they will see huge wealth gains if you stay on the path to higher Bitcoin prices.”
“If someone is actually doing what I would consider traditional asset allocation, the question they face every quarter, every month, every year is whether to rebalance,” he added. “From a risk management perspective, Rebalancing is a good thing, but rebalancing also means they will become sellers in the process.”
At some point, every holder Julio Moreno, director of research at CryptoQuant, said that currently, long-term holders are selling Bitcoin after accumulating during the bear market, which is normal during the bull market.
Matt Hougan, chief investment officer of Bitwise Asset Management, the issuer of the Bitwise Bitcoin ETF (BITB), said investors should “treat Bitcoin like any other asset…add it to a portfolio and include a rebalancing process” — He pointed to the traditional four characteristics of Bitcoin – three years of good years, followed by a cycle of bad years.
“Bitcoin has boom and bust cycles,” he said while speaking at the Vision Conference, an advisory cryptocurrency investment forum hosted by the Digital Asset Council of Financial Professionals. “When you add rebalancing to a portfolio, the impact on ‘sharpness’ and other metrics increases dramatically.”
The Sharpe ratio helps investors evaluate the return they receive from their investments relative to the risk they take.
Michael Allegue, investment officer at MassMutual, said the rebalancing could help curb Bitcoin’s notorious volatility, which is one of the biggest factors keeping many investors away from the asset.
“As more institutional capital comes in, volatility is likely to subside as many other firms, including us, may rebalance their accounts – they are not purely buying and holding,” Allego said.
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