More investment options are now available for crypto, and advocacy on sound financial literacy and risk management is essential.
On January 10, 2024, the world witnessed a milestone of one of the most exciting fintech innovations of our time, the approval of the U.S. Bitcoin ETFs. The victory symbolizes the maturation of blockchain technology and a strong demand from global investors. In a matter of days, the Bitcoin ETFs broke a record of ETF inflow, surpassing Silver ETF in the U.S. as the top 2 in terms of volume.
There is no doubt that global investors now have a much easier and more compliant way to access crypto. This is certainly good for the crypto industry, but further growth is needed to convince broader retail investors in the traditional finance space, where retail investors’ trading volume is less than half of that of institutional, according to Coinbase. In other words, the current trading volume by retail has decreased from 80 percent to around 40 percent since 2018. This is potentially concerning if the crypto industry aims to influence the culture and perspective of the legacy financial system.
In a recent conversation with a fellow investor, Louis, a former tech consultant at a leading boutique consulting firm in Europe, he expressed his continuing interest in crypto investing. “I’m attracted to the advantages of decentralization and its implications for various applications and industries such as payment and a form of global currency, in the case of Bitcoin, that is not influenced by the government’s decision,” he said.
“But the lack of the regulation clarity, accounting standards, or valuation models makes it hard to choose the best crypto among thousands of options,” he continued. Much of the crypto industry grappled with scandals over the past few years with big names falling out. The drama dampened investor confidence in this asset class and turned many to AI, which has seen a stellar rise in the past year.
Similar to ETFs in traditional finance, Bitcoin ETFs offer retail investors a secure and hassle-free investment experience. Unlike buying directly from crypto exchanges, which can be confusing as one has to worry about the security and compliance of their service provider, with one example being FTX, where its creditors are still clawing back their lost funds.
In this perfect marriage where Bitcoin and ETFs can be regulated, investors can be protected by the relevant security laws under the SEC. Investors can finally be assured that their investment is conducted by licensed service providers and confident about redemption or funds withdrawals.
To make informed decisions, both the private and public sectors also need to do more to offer quality investor education on the risks of crypto investing. The Chair of the SEC Gary Gensler warned of the risks of crypto investment before approving all 11 spot ETFs. “Investments in crypto assets also can be exceptionally risky & are often volatile. A number of major platforms and crypto assets have become insolvent and/or lost value. Investments in crypto assets continue to be subject to significant risk,” he said.
On the crypto company’s level, blockchain technology offers abundant data and transparency in terms of on-chain activities. However, lacking a standardized valuation model or analytic tools for day-to-day investors can be frustrating when making huge bets. Crypto companies, especially big exchanges, can surely offer helpful toolkits for investors with different levels of experience.
“High volatility and lack of strong oversight by the regulators make it hard to make confident decisions and filter for the best options. As a person who has limited knowledge on the topic, it seems that investment and speculation are blurred,” Louis added.
At the end of the day, Bitcoin ETF represents a fresh start for crypto investing where compliance, security, and most importantly confidence. More crypto ETFs will follow suit with a stronger focus on investor education and protection, we are only at the beginning of mass adoption.
Yiwei Wang is an avid blockchain enthusiast with a focus on the intersection of crypto, economics, and public policy. He was previously the Global PR Lead at Babel Finance and he began his career at Ogilvy in Beijing. He is currently the Head of Global PR at Metalpha.
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