By Grant Wasylik, analyst, Palm Beach Daily
“Buy me bitcoin… or I’m leaving.”
That’s the ultimatum a client recently gave to his financial adviser.
Naturally, this begs the question: What did the adviser do?
Now, you won’t read about this story in Barron’s, The Wall Street Journal, or Yahoo Finance.
It’s from personal experience.
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I’m a member of this wealth management firm’s investment committee.
Every quarter, I meet at its South Florida office. We talk about the markets and review model portfolio performance. I also give them a handful of investment ideas.
And the firm’s CEO told me he bought the Grayscale Bitcoin Trust (GBTC) for his client.
GBTC allows everyday investors to gain exposure to bitcoin through a traditional investment vehicle.
Essentially, GBTC trades like a closed-end fund (CEF). It can trade at a discount or premium to its underlying value. And since its inception in May 2015, GBTC has traded at an average premium of about 40%.
So, on average, investors in GBTC have exposure to bitcoin at a 40% premium to its current price.
You might ask, “Why would anyone do that?”
The bottom line: convenience…
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You Can’t Ignore This Asset Class
Being able to buy bitcoin instantly is attractive for individuals and advisers.
You don’t have to open an account on BitGo, Coinbase, or Robinhood. You don’t have to hold private keys. And you’re less likely to get hacked.
So while I was shocked at the client’s threat, I wasn’t surprised by the solution.
And even though we’re seeing unprecedented market volatility and panic due to the coronavirus pandemic… investment firms are continuing to make crypto more available to their clients.
For example, just last week, South Korea’s largest bank filed a trademark application to launch a crypto custody platform soon.
You see, the overwhelming majority of financial professionals are starting to wake up to this asset class.
The last thing an adviser wants to do is lose a client. That would mean assets and fees out the door.
So if a client has questions on crypto, advisers need to have available solutions, like GBTC.
Otherwise, the client may go to another adviser who deals in crypto… do it on their own… or even go to their teenager for advice, instead.
Basically, advisers can no longer ignore crypto. And more of these demands for crypto are likely coming.
Also, advisers are liking what they’re seeing in the crypto space…
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One of the Best-Performing Assets
First, bitcoin has been one of the best-performing assets over the last year, three years, and five years. It’s outperformed all other asset classes – including stocks, gold, emerging markets, and more.
And second, cryptos are uncorrelated to the markets. In other words, their movements aren’t tied to the stock market or overall business cycle…
Correlated assets move together in price direction. For example, healthcare stocks generally move in the same direction as each other. They’re usually affected by the same events.
However, uncorrelated assets aren’t affected by these forces.
Now, bitcoin has gotten clobbered along with the broader market. But here’s what Daily editor Teeka Tiwari says about this selling…
Bitcoin and gold are getting sold to cover massive margin calls generated by stock market volatility. These sellers don’t want to sell… they have to sell.
And when you have to sell, you’ll accept any price the market gives you.
So despite the recent market action, bitcoin still has ultra-low correlation to other asset classes. And Wall Street is starting to realize that.
But wait… It gets even better…
The Real Genius of Crypto
The best part is, just a tiny allocation to crypto can boost a portfolio’s returns… while also lowering its risk.
You see, a 2019 study by Bitwise Asset Management concluded that allocating just 1–10% of your portfolio to bitcoin gives better risk-adjusted returns than holding just stocks and bonds.
And in the money management world, that’s the holy grail. It’s also why it’s now more important than ever to diversify your portfolio with an allocation to bitcoin during all the market volatility.
It’s no longer a question of if this asset class will make its way into model portfolios run by financial advisers. It’s a question of when.
Now, bitcoin – and many other top cryptos – has a fixed supply. So when demand increases, it’s off to the races. And with all the coming inflation from global central bank stimulus packages to revive economies, we expect demand to surge even more.
So if you’re looking to build your exposure to crypto, start with bitcoin. We generally recommend an allocation of up to 2% for cryptos.
Remember, even a small allocation can make a difference. Cryptos offer you a chance to make asymmetric bets. So you only need to invest a tiny stake to have a chance at life-changing gains.
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We’re not saying don’t buy stocks… But cryptos give you the potential to make outsized gains while keeping your positions small.
And Teeka’s found five tiny cryptos he believes have the potential to turn a few $500 investments into as much as $5 million as the crypto market rebounds.
To learn more about Teeka’s “Final Five,” click here. But don’t delay. It’s only a matter of time before his presentation gets pulled offline…