By Ambrose O’Callaghan
Bitcoin, the largest digital currency by market capitalization, reached an all-time high of $73,835.57 USD during intraday trading on March 14, 2024. The spot price of the world’s largest crypto has since retreated below the $63,000 USD mark at the time of this writing. What is behind the recent price action for Bitcoin? Where does it leave the rest of the crypto and blockchain market? Should investors be looking at crypto or the tech that enables it?
Today, I want to explore some of these questions and determine whether the Blockchain Technologies ETF (HBLK:TSX) is right for your portfolio as we approach the first days of spring. Let’s jump in.
What is behind the recent price action for Bitcoin?
Bitcoin and other cryptocurrencies like Ethereum are risk assets. Meanwhile, an investment vehicle like US Treasuries with very short maturities serve as a proxy for a risk-free asset. Risk assets tend to move up in price when Global USD liquidity is on the rise. Bitcoin, gold, and other risk assets have seen a rise with the expectation that the US Fed will reduce interest rates. The US Treasury has also injected liquidity into the system via different measures.
The cryptocurrency space benefited enormously from an August 2023 court ruling that compelled the Securities and Exchange Commission (SEC) to authorize spot ETFs. Previously, the SEC had been more inclined to compromise. At the time, the entity preferred futures ETFs due to their perceived lower volatility and lower risk of price manipulation.
February saw the launch of multiple spot Bitcoin ETFs. These ETFs have received a combined ~$20 billion in flows year-to-date as of close on March 15, 2024. Net of the Grayscale Bitcoin Trust, outflows have been ~$10 billion.
The supply of Bitcoins has failed to keep pace with the demand generated by the launch of these ETFs. As a result, these large inflows have led to a surge in the price of Bitcoin.
What is the difference between blockchain and Bitcoin?
Blockchain is the infrastructure on which Bitcoin and most other cryptocurrencies work. Readers can think of blockchain as a ledger or account book that records all transactions that happen on its network. The records are distributed within multiple participants or locations. That way, its almost impossible to tamper with a transaction that has already been recorded.
How is this technology being used? Fortunately, it is being utilized in a vast array of applications across different industries. For example, record keeping and information relay in logistics, as well as real time settlement in the financial industry. This could help to improve efficiency and dramatically speed up processes in both sectors. That is worth getting excited about.
What makes HBLK a desirable way to gain exposure to this new technology?
The Blockchain Technologies ETF invests in securities tied to the emergence and adoption of blockchain technology. This ETF is designed to give investors pure-play exposure to the potentially world-changing uses of this technology.
IT and technology consulting companies are exploring blockchain. Other companies have implemented blockchain in their supply chain. This has helped banks settle institutional FX transactions in real time. Others, like VISA and Mastercard, use blockchain for various transaction settlements at the institutional level.
Of course, cryptocurrency miners and/or transaction processing or staking companies that use very fast processing computers (Nvidia GPUs) to help mine Bitcoins and other cryptocurrencies. These companies can turn a profit when they sell their generated Bitcoin under safe custody. There are also trading, crypto wallet, and service companies like Block and Coinbase. These companies seek to aid retail and institutional investors trade and hold Bitcoin under safe custody.
Other opportunities in this space include payment processors; companies that enable crypto related transaction, and digital asset companies. Digital asset companies provide services such as digital asset management and forensic analysis for cryptocurrency transactions.
Shares of HBLK have climbed 8.69% on an annualized basis since its inception as at February 29, 2024. The ETF has surged 71% over a 1-year period. However, it has declined 9.46% over a 3-year period and increased 20% on an annualized basis over a 5-year period as at the end of February 2024.. What is the key takeaway here? Blockchain is an exciting space with growth potential, but investors will have to stomach the risk and increased volatility that comes with this space.
What are the risks around Bitcoin and blockchain?
The blockchain and cryptocurrency space carries above average risk. Indeed, Bitcoin and other cryptos, including companies that are affected by the price of the underlying, are highly volatile. Investors should think of investing in this space with a long runway. With that in mind, they should allocate capital prudently.
Regardless, Bitcoin and its peers in the crypto space have benefited enormously from the Securities and Exchange Commission (SEC) decision to give the greenlight to Bitcoin exchange-traded funds (ETFs).
Disclaimer
Commissions, management fees and expenses all may be associated with investing in Harvest Exchange Traded Funds (managed by Harvest Portfolios Group Inc.). Please read the relevant prospectus before investing. The funds are not guaranteed, their values change frequently, and past performance may not be repeated. The content of this article is to inform and educate and therefore should not be taken as investment, tax, or financial advice. The information is meant to provide general information for educational purposes. Any security mentioned herein is for illustration purposes and should not be taken as an invitation to purchase or sell such security.
