Bitcoin should be a part of people’s retirement accounts as the cryptocurrency’s rewards outweigh its risks, Anthony Scaramucci, the founder of investment firm SkyBridge Capital, said in an interview with 401K Specialist, a magazine that covers defined contribution plans.
Bitcoin purchases should be “in bite-size, digestible chunks,” so that clients, including plan participants, will be comfortable holding the volatile asset, he told 401K Specialist magazine in an article published online Wednesday.
Bitcoin, which is prone to big price swings, has dropped about 32% so far in May to trade below $40,000.
But bitcoin’s volatility is one reason the digital currency should be part of a retirement portfolio, he said.
“People can trade within their 401k without tax consequences,” Scaramucci said. “If we’re right about Bitcoin and I was your financial advisor, I would tell you that over the next 100 years, this is the technology that people are going to use for a large swath of commerce on the planet.”
Bitcoins “are scarce, and they’re going to be valuable. For that reason, I do think it’s appropriate to own a few in a retirement account,” he said.
Scaramucci earlier this month defended the slide in bitcoin’s price in a Bloomberg interview, saying bitcoin has been able to “maintain its supremacy as the apex predator in digital currency.”
401K Specialist said Scaramucci recommends that non-professional investors have bitcoin exposure of no more than 5% of their retirement portfolios. SkyBridge’s bitcoin exposure has grown to more than $500 million, the magazine reported and noted that the money manager projects bitcoin will hit $100,000 this year.
Bitcoin “was the best performing asset over the last 10 years, and I predict it will be the best performing asset over the next 10 years,” said Scaramucci.
“Shark Tank” investor Kevin O’Leary has allocated 3% of his portfolio to bitcoin and is aiming to bolster sustainability in mining for the world’s largest cryptocurrency.
O’Leary told Yahoo Finance Live in an interview that aired Wednesday that he made the allocation after Canada, where he’s from, and other countries eased restrictions on institutional purchases of bitcoin. Regulators in Canada so far this year have approved the launch of four cryptocurrency exchange-traded funds.
The chairman of O’Shares ETFs, who called bitcoin “garbage” in a May 2019 interview on CNBC, said in March that he would be adding bitcoin to his portfolio partly because he thought of it as a hedge against inflation. He told Yahoo Finance Live that after his announcement he received numerous calls from institutional investors asking if he knew where the coins originated. He warned that “there’s a big problem brewing” in the crypto industry how and where coins are mined.
He said he’s working to make sure every coin he owns is compliant.
“I know the provenance of where my wallet coins were mined now, and that means I’ve had to take equity positions in miners. I’ve had to start investing in them with the covenants in place that I would like to be paid back in a royalty of a clean coin,” O’Leary said.
He also said he’s working on organizing a “council of sustainability” to include corporations and governments that are mining coins responsibly.
Bitcoin is a target of criticism in part because its digital mining process requires a significant amount of energy. Research from Cambridge University shows it uses more energy each year than Sweden and Argentina.
Bitcoin’s fast-growing popularity, increasingly elevated profile in corporate America and swelling market capitalization above $1 trillion have retail and Wall Street investors alike questioning if and when a bitcoin exchange-traded fund can be traded in the US. Those questions are currently before the Securities and Exchange Commission which is being asked in at least nine applications for the green light to launch what could be the first cryptocurrency ETF in the country.
The arrival of a bitcoin ETF in 2021 would follow this month’s start of trading in shares of Coinbase, the first cryptocurrency exchange to go public, as well as expanding acceptance of bitcoin as payment methods by companies including electric vehicle maker Tesla. Meanwhile, investment bank JP Morgan is preparing to introduce its first bitcoin fund for wealthy clients.
These and other bitcoin developments may signal the increased likelihood that a bitcoin ETF will gain approval, but the SEC has rejected other attempts.
Institutions “are getting in from hedge funds on Wall Street to PayPal, to Venmo, to Visa. So [the SEC] can’t really ignore this because the market is deciding that they want to be involved,” Ian Balina, founder and CEO of Token Metrics, a data-driven cryptocurrency investment research platform, told Insider.
Here are three hurdles and tailwinds that experts say stand in front of the first US bitcoin ETF:
1) Bitcoin volatility
The world’s most widely traded digital asset is well-known for its wild price swings, with gains or losses of 10% during a session not uncommon.
“The SEC has a difficult job balancing the clearly overwhelming desire for the market to have access to BTC via an ETF versus the inherent volatility that the asset class has at this stage in its life cycle,” George McDonaugh, co-founder of digital asset investment firm KR1, told Insider. “Volatility would be one of the major considerations. Bitcoin is very scarce and comparatively still a very young asset class. The volatility should dampen over time but that might be long after the market loses patience waiting for [a bitcoin ETF].”
Liquidity in the bitcoin market had also been a factor under consideration by the SEC.
“I think it’s less of a concern now [than] in the early days … and a lot of that is tied to institutional players coming into and creating depth and breadth in the market,” Matteo Dante Perruccio, president international of Wave Financial, a US-regulated digital asset manager, told Insider. “If it’s 90% retail investors in an asset and you open it up to a bigger universe of retail investors, I think that’s a really hard decision to make as a regulator. But it helps you have substantive institutional investors trading and involved in investing in it.”
“It’s fair to say if you look at the denials for the last several ETFs, you can see that there was concern among several of the commissioners that the bitcoin market was not sufficiently regulated and, in their view, was susceptible to manipulation,” and “when I say that I mean that manipulation would show up in prices,” Amy Doberman, a partner in the securities department at law firm WilmerHale, told Insider.
“I think what you’re going to see with the pending requests for approval is an argument that the market is far more developed than it was four or five years ago and that there’s a lot more price discovery available than there was even just a few years ago so that there will be the ability to reference actual trades and sufficient information to develop accurate prices,” said Doberman.
3) What’s on the SEC’s plate
The US lags behind other countries in approving bitcoin ETFs, with Canada this year approving the first publicly traded bitcoin ETF in North America, the Purpose Bitcoin ETF, as well as ethereum ETFs. Brazilian regulators have reportedly approved two bitcoin ETFs.
“People underestimate the Canadian approval,” said Wave Financial’s Perruccio, characterizing as “close cousins” the SEC’s relationship with the Canadian securities regulator. “The regulators have got to be talking a lot and … you always feel more comfortable in company when you are making these bold decisions,” and Canada’s regulator is considered as well-respected, he said. For a US bitcoin ETF, “I feel like it’s inevitable. It’s no longer ‘if’ but ‘when’ and I think the question of when is probably in 2021. That’s my prediction,” said Perruccio.
While bitcoin ETF applications pile up, the SEC and its new chairman Gary Gensler have a range of other issues they are working on. Gensler, who was confirmed as chairman earlier this month, is seen by some bitcoin ETF proponents as a cryptocurrency advocate stemming in part from his teachings at MIT on the subject.
Gensler “will have to decide what he wants to prioritize,” said Doberman. He’s “obviously very knowledgeable about cryptocurrencies and hopefully will bring an additional level of sophistication and appreciation for the currency to the table,” she said.
While he’s well-versed in the subject of cryptocurrencies, Gensler, who served as a chairman of the Commodity Futures Trading Commission under the Obama administration, will not just wave through bitcoin ETFs applications without scrutiny, said Noah Hamman, CEO of AdvisorShares, a firm that offers actively managed exchange-traded funds through its AdvisorShares Trust.
Gensler will be in the role “of looking at the rules and regs and deciding if either, one, something fits or two, do the rules and regs need to be modified to allow it to fit because it makes sense and it’s the right thing to do,” said Hamman. AdvisorShares does not have a bitcoin ETF filing with the SEC.
Grayscale Investments said in a blog post Monday it’s “100% committed” to converting its flagship Grayscale Bitcoin Trust into an exchange traded fund.
The world’s largest digital asset manager confirmed its intent to re-apply with the US SEC to offer an ETF after previous failed attempts to win approval.
“First and foremost we wish to make clear: we are 100% committed to converting GBTC into an ETF,” Grayscale said.
The Grayscale Bitcoin Trust was launched in 2013 and has been the go-to option for investors who want to add bitcoin exposure to their portfolio without directly buying the digital asset.
In the blog post, the investment company said that it always intended for its fund to become an exchange-traded fund when permissible. Grayscale first submitted an application for a bitcoin ETF in 2016 but ultimately withdrew iy because it determined the regulatory environment wouldn’t allow for a bitcoin ETF.
“While several firms have submitted Bitcoin ETF applications in the form of an S-1 or 19b-4 to the SEC, we are confident in our current positioning and engagement with the SEC,” Grayscale said. “Today, we remain committed to converting GBTC into an ETF although the timing will be driven by the regulatory environment.”
Grayscale also said that the management fee of the GBTC fund will be “reduced accordingly” when the trust is converted to an ETF.
According to Fundstrat‘s lead digital asset strategist David Grider, the plan to convert the fund should relieve recent selling pressure on GBTC shares and will re-energize demand from bitcoin investors who are willing to contribute to the GBTC trust again.
“We think this is a very positive move for Grayscale to maintain its position as a leader as the largest listed Bitcoin product and this announcement should help close the negative premium gap,” Grider said in an email.