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Cryptocurrency culture encourages investors to “HODL” — to hold on for dear life on the rollercoaster ride. BitcoinExtreme fluctuations in.
But as ETF adoption grows, this long-cherished practice could fade, especially as traditional investors accustomed to rebalancing their portfolios increase their exposure to Bitcoin.
Cryptocurrencies have become increasingly institutionalized in recent years, a trend that is expected to grow stronger following the launch this year of exchange-traded funds that track the price of Bitcoin, especially as various brokerages, brokerages and advisors begin giving clients access to ETFs.
“There are a lot of diamond owners in this community,” Donald Maron, director of economic policy initiatives at the Urban Institute, said this week at the 2024 Vision conference in Austin, Texas. “If we can convince them to put in 1 percent, [to bitcoin] Today… and never touching it, they stand to become enormously wealthy if Bitcoin continues on a path to a much higher price.”
“Anyone who is actually doing what I would consider a traditional asset allocation is going to be faced with the question of whether they rebalance quarterly, monthly, annually,” he added. “From a risk management perspective, rebalancing is a good thing. But rebalancing also means that they’re going to be selling in the process.”
Someday, all HODLer According to Julio Moreno, head of research at CryptoQuant, Bitcoin is becoming a seller. Right now, long-term holders are selling, as is often the case in bull markets, after accumulating Bitcoin during a bear market.
Matt Hogan, chief investment officer at Bitwise Asset Management, which issues the Bitwise Bitcoin ETF (BITB), said investors should treat Bitcoin “like any other asset and include an investment and rebalancing process in their portfolios,” pointing to Bitcoin’s traditional four-year cycle of three strong years followed by one weak year.
“Bitcoin has boom and bust cycles,” he told the Vision conference, a crypto investment forum for advisors hosted by the Financial Professionals Digital Asset Council. “When you add rebalancing to a portfolio, the impact on ‘Sharps’ and other metrics increases dramatically.”
The Sharpe ratio helps investors evaluate the return they can expect from an investment depending on the amount of risk they are willing to take.
According to MassMutual investment chief Michael Alleg, rebalancing could help tame Bitcoin’s notorious volatility, which is one of the biggest reasons many investors shy away from the asset.
“As more and more institutional money comes in, we and many other firms will likely rebalance their accounts, which could dampen volatility rather than remaining purely buy-and-hold,” Aleg said.
