#1 Reason 2018 Will be the Year of the Crypto Asset Class (and not 2017)
Main Point:
- The unleashing of professional sales & marketing for crypto-based investment products over the next few months will make 2018 The Year of the Crypto Asset Class.
Highlights:
It’s anyone’s guess when and at what level this bubble in bitcoin will burst.
- To date, bitcoin “investing” or speculation has required transferring money into risky & unfamiliar places or overpriced investment products.
- Meanwhile, bitcoin “marketing” or publicizing has generally been limited to word-of-mouth & the media.
- Professional sales & marketing of crypto assets, via traditional distribution channels, has been largely absent because there has not been an easy way to monetize such efforts.
- Even today there are very few investment products that are available to the general public, or that can even be advertised to the general public, let alone products with any meaningful marketing & advertising budget.
- Regarding the few desirable crypto investment options that do exist today, most do not have an easy way for financial advisors and securities brokers to manage those assets and collect their fee/get paid for recommending them.
2018 will be different
- There are dozens of new crypto-investment products on the horizon that will open up the traditional distribution channels for investors between now and early-2018.
- With a good sales and marketing team just about anything can and will be sold; especially a sexy new asset class.
Nonetheless, with respect to bitcoin, I still believe, as quoted in Forbes this month: “The price level and energy usage are unsustainable. There is far better technology emerging to meet the same needs.”
My Recommendation:
So you want a ride on this bubble? What next? Wait for a dip? Buy shares in an overpriced publicly traded trust? For accredited or qualified investors: invest via index funds or via trend-following strategies like CoinAlpha to take off some of the risk?
As a Registered Investment Advisor, I prefer to work out a customized strategy for each client incorporating their risk/reward profile and goals before making any investment recommendations. I’d be happy take your call.
But I will say this: the last thing I’d want to be right now is short bitcoin. In the 1999/2000 tech boom, I remember a lot more people who lost their shirt shorting equities, than those lucky few who came out ahead shorting at the top.
Background
I spent the bulk of my career on the institutional side of the investment business, largely shielded from sales & marketing. I have always had a distaste for the industry’s sales & marketing incentive conflicts (among others), or what I perceived to be wasted investor money spent on excessive sales commissions, unnecessary middlemen or generally inferior investment products.
Over time, it’s become clear that those sales & marketing expenses would not have existed if there were not a positive ROI (return on investment). And in many cases, my role in the company would not have existed without people on the front lines bringing in new assets to manage. So I do have a respect for efforts of sales & marketing in any business.
More to the point here: with a good sales & marketing team just about anything can and will be sold; especially a sexy new asset class.
Keep reading for more details on why I believe 2018 will be the year of the crypto asset class (and not 2017)…but, it all gets back to the points summarized above.
Futures Contracts are Coming
Both the Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME) are each planning the launch of bitcoin futures contracts in December, barring any legal or regulatory delays.
The launch of bitcoin futures opens the door for institutional investors to place their bets without the issue of transferring money into risky & unfamiliar places or overpriced investment products (e.g. GBTC).
For more details see: CBOE, CME Bitcoin Futures Details Released
ETFs Will Follow
The closest thing to an ETF (Exchange Traded Fund) that is available today is the Bitcoin Investment Trust (symbol: GBTC). However, unlike ETFs which generally trade at or near the fund’s NAV or Net Asset Value, the Bitcoin Investment Trust trades at a premium to (in excess of) the underlying bitcoin it holds. Investor demand is so strong for access to bitcoin via a traditional security, that the premium on GBTC has ranged between 25%-100% over the past several months.
Yesterday (Nov. 27), it closed with a 51% premium. If you wanted to own shares that represented $10,000 worth of underlying bitcoin, you had to pay $15,100 to get that in GBTC. Each share of GBTC represents 0.09211978 bitcoin
This is because there are no ETFs available. Absent another security like futures contracts, the SEC has rejected or delayed every crypto ETF filing, such as from familiar ETF providers ProShares & Van Eck, as well as less traditional sponsors, such as the Winklevoss twins — who evidently did the right thing moving in crypto assets some of their Facebook fortunes.
There is every reason to expect the premium of Bitcoin Investment Trust (GBTC) to race toward 0%, the moment new crypto-ETFs get approved for trading.
Bulge Bracket Banks: Who Wants to be First?
The Wall Street Journal reported last month that Goldman Sachs could be the first big Wall Street firm to deal directly in the growing yet controversial cryptocurrency market.
The firm already has an analyst publishing price targets, albeit based on technical analysis.
“In response to client interest in digital currencies, we are exploring how best to serve them in the space,” a Goldman Sachs representative said in a statement.
Any forward movement from Wall Street that validates investor demand for crypto assets will bring along with it a huge distribution channel with some of the best sales people in the business.
Innovative Alternative Investments
Although limited to accredited or qualified investors, private investment funds or hedge funds can also invest in crypto assets.
Every hedge fund today with even modest exposure to crypto assets can be expected to post outstanding 2017 performance. And there is a wide range of crypto exposure out there, from smaller funds with names known only by their partners to higher profile investors like Chamath Palihapitiya, founder/CEO of Social Capital, and who has “been massively long” bitcoin for years.
Simply by marketing their 2017 performance, one can expect new cash allocations for these funds well into 2018. What salesperson would not want to be compensated for pitching any of those funds right now?!?
At the same time, in San Francisco alone, I can name a dozen innovative new crypto funds that have been recently announced or that have beta launched and are only now raising & deploying fresh cash into crypto assets.
And it’s not just where they invest or their investment style that makes them innovative. My favorite example of how the power of blockchain technology is changing our business is CoinAlpha.
Their use of blockchain technology & smart contracts eliminates the need for administrators, accountants, and other third parties. All of those expense layers have traditionally been necessary with hedge funds to help prevent manipulation/misreporting, or worse, Bernie Madoff-style fraud.
“By using blockchain-based smart contracts to process all fund-related transactions and log a replayable audit trail, we eliminate the need for administrators, accountants, and other third-parties. This enables us to provide investors with lower fees, lower minimums, and daily liquidity.” link: CoinAlpha
Another example is the Bitwise HOLD 10 Private Index Fund which holds the top 10 cryptocurrencies weighted by market cap. What makes this one interesting that it’s a fund that comes with the backing of SF Bay Area A-list angels such as Naval Ravikant (AngelList cofounder), Elad Gil (Color Genomics cofounder & former Twitter VP), Avichal Garg (Y Combinator partner) and Diogo Monica (Docker security lead).
With that advisor backing, it’s a safe bet that Bitwise will have access to A-list marketing and PR talent.
Why All of This Bitcoin Mania, Anyway?
For some links to better understand the blockchain technology, etc., click here for my top-three recommended articles to quickly get up to speed on crypto assets:
IMPACT ADVISOR | Socially-Selective, Tax-Smart Wealth Management
Blockchain:
- Blockchain, as a revolutionary technology, is the fundamental driver of bitcoin mania; bitcoin being the first truly stellar implementation.
- Blockchain enables decentralized trust, eliminating the need to rely on a government, a bank or any institution to authenticate a transaction.
What is so important about decentralized trust or authentication?
- Check out this image from the Financial Times (source: Mohamed El-Erian, posted on LinkedIn last week)
- For historical context, Gallop maintains, annually, what Americans think about trust or their “confidence” in various institutions: Confidence in Institutions (slow-loading link)
Wrap Up — It’s All About Marketing & ROI
2018 will introduce professional sales & marketing of the crypto asset class to mainstream investors.
Still today there are few investment products that are even available to the general public or that can be advertised to the general public, let alone products with any meaningful marketing & advertising budget.
There are few investment products available to financial advisors, that don’t require transferring money into risky & unfamiliar places or overpriced investment products. Moreover, for the few desirable options that do exist today, most do not have a way for advisors to manage those assets and collect their fee.
All of this is changing. New products on the horizon will be designed with a positive ROI on professional sales & marketing efforts. This will drive the crypto asset class into the mainstream investment channels, increasing demand.
It’s anyone’s guess when and at what level this bubble in bitcoin will burst.
Do not short bitcoin right now.
Nonetheless, with respect to bitcoin, I still believe, as quoted in Forbes this month: “The price level and energy usage are unsustainable. There is far better technology emerging to meet the same needs.”
It will blow up. It will be ugly. But it’s going to be one heck of a rocket ride between now and then.
In the meantime, think of “bitcoin $10,000” as yet another advertising campaign for the crypto asset class.
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About the Author
Jason R. Escamilla, CFA is CEO of ImpactAdvisor LLC, a boutique Registered Investment Advisor based in San Francisco, serving individuals and corporate clients with advanced wealth management needs: high tax-bracket, custom-tailored portfolios, alternative investments, etc.
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