ETFs are a gateway for investors not ready to invest in cryptocurrency yet, and there are some pros and cons to such an investment plan.
“The reason I like ETFs is that you have ownership in that stake through equity and if these companies are able to leverage blockchain and unlock the value from it, then the company will benefit, the value of the company will go up and my position will go up with it,” said Zev Fima, research analyst for Jim Cramer’s Charitable Trust during a roundtable webinar sponsored by VanEck on the evolution of blockchain.
In terms of ETF versus individual stocks, Fima says that Cramer’s Actions Alerts PLUS analysts aren’t looking at the stocks that are directly related to what happens in Bitcoin, whether that’s Riot Blockchain (RIOT) – Get Report, Marathon (MARA) – Get Report, MicroStrategy (MSTR) – Get Report.
“To us, that’s still a bit speculative. What I like about the ETF is that you get a little bit of exposure to that, but then you also have Square (SQ) – Get Report, Nvidia (NVDA) – Get Report, PayPal (PYPL) – Get Report and Taiwan Semiconductor Manufacturing (TSM) – Get Report in there…that will reduce some volatility while providing an embedded call option to the upside,” said Fima.
Those are businesses with a lot of other end markets amid the volatility, so if there’s another crash in the cryptocurrency market then you’ll be okay.
“This is a new space…what something like an ETF does for me is that it allows me to say ‘you know what, I’m not going to be able to say which company… do I bet on Marathon, do I bet on Riot, do I bet on Voyager Digital (VYGVF) – Get Report‘…but in this way, I can say that I have exposure to it all and if these companies are going to see synergies or unlock value from it, then I get to play to the upside,” Fima added.
ETFs dampen the volatility, spread the bed a bit, and can act as an insurance policy for any ignorance in the space by investors who are new to the cryptocurrency market and looking to get their feet wet before jumping into the pool. They offer the ability for investors to get exposure while they learn.
“My biggest piece of advice on this on the cryptocurrency side is to do your research — you’ve got to do your research to understand the projects, understand what you’re getting into and understand the volatility of it. We think that there should be some allocation to it because of the risk-return characteristics that we’ve seen in some of these cryptocurrencies, but find an approach that works for you,” said Ed Lopez, Managing Director and Head of ETF Product at VanEck (OUNZ) – Get Report.
It seems as though the pro of the ETF is also the con — if you want the direct investment, an ETF of equities probably won’t get you that. But if you want the companies that have other end markets that can get the upside, it will.
“Personally, I am certainly looking forward to an actual cryptocurrency Bitcoin ETF. One of the reasons being, especially for younger investors, it will be really nice to have exposure to something like that in an IRA or Roth IRA…something with a long-term time horizon without jumping through some hoops. It’s really hard to get Bitcoin into something like a retirement account,” said Fima.
Watch the full webinar sponsored by VanEck to hear more insight about the evolution of blockchain and how the foundation of crypto Is changing fintech: