The Rise of Digital Assets and Cryptocurrencies: What Lies Ahead
In recent years, digital assets and cryptocurrencies have garnered immense interest. Even though the total crypto market faced a sharp decline at the beginning of 2024, it has shown remarkable price increases and currently boasts a market capitalization of $3.59 trillion. The evolution of the digital asset landscape presents important developments that investors should keep an eye on. This article explores recent shifts and their implications for those investing in digital assets.
Expectations for 2025
Following Donald Trump’s victory in the presidential race, digital asset prices have experienced a notable surge. Investors are optimistic that his administration will enhance support for cryptocurrencies and clear regulatory hurdles for crypto projects. The resignation of SEC Chairman Gary Gensler, known for his criticism of digital assets and the initiation of several lawsuits against various crypto entities, adds to this sentiment. With Paul Atkins rumored to take the SEC helm, a less adversarial approach toward cryptocurrencies is anticipated, suggesting that the SEC may shift its focus away from restricting digital assets.
This shift in regulatory outlook might elucidate the recent rally in digital asset prices post the 2024 presidential election. Bitcoin has recently surpassed the $100,000 mark, a significant achievement. Additionally, many other prominent digital assets have reported major price increases.
New ETFs: A Transformative Investment Opportunity
Earlier this year, the SEC granted approval for several bitcoin (BTC) exchange-traded funds (ETFs). This development marks a shift in how investors can engage with bitcoin, allowing them to invest through ETFs rather than directly holding the currency. Prior to the introduction of these ETFs, investment avenues were limited to purchasing bitcoins on exchanges or through specialized funds like the Grayscale Bitcoin Trust, which did not consistently reflect bitcoin’s price movements.
The newly introduced bitcoin ETFs are crafted to closely mirror bitcoin’s price while offering lower costs and enabling intraday trading, akin to stock trading. As of October 2024, the largest of these is the iShares Bitcoin Trust ETF, managing $21.1 billion in assets. This wave of liquidity and new investment vehicles is expected to draw increased institutional interest in digital assets.
Following the bitcoin ETFs, ethereum ETFs received SEC approval later in 2024, accompanying similar ethereum-tracking funds in the market. Currently, the Grayscale Ethereum Trust is the largest in this sector, with $972 million in assets. Both bitcoin and ethereum are widely regarded as the premier digital assets, driven by robust investor engagement and extensive network activities. While ethereum is celebrated for its versatile smart contracts, bitcoin retains its dominance as a preferred store of value.
Some providers, like Bitwise, have also launched ETFs that encompass a broader array of digital assets beyond bitcoin and ethereum, including Solana, XRP (Ripple), and Cardano. However, these lesser-known digital assets typically exhibit heightened volatility and liquidity challenges, making their price movements more unpredictable. Thus, more cautious investors may wish to steer clear of these assets, as they could carry additional regulatory risks.
Direct Ownership vs. ETF Investment
Investors seeking specific benefits, such as active tax-loss harvesting, might find direct ownership of digital assets advantageous. Presently, tax regulations do not impose wash-sale restrictions on digital assets, allowing investors to realize tax losses and repurchase almost immediately—a flexibility not found with traditional marketable securities.
However, owning digital assets through exchanges entails risks, such as exposure to hacking and the necessity of managing digital wallets. Compared to conventional securities, digital assets face less regulation, with fewer protective measures in place than on traditional brokerage platforms. For less experienced investors, digital asset ETFs can simplify the investment process by mitigating some of these challenges. Consulting with a financial advisor can help clarify the best investing strategy in the digital asset realm.
Trends in Digital Asset Pricing
Bitcoin is notorious for its volatile price fluctuations. At the beginning of 2024, it was valued at approximately $44,000 and soared to around $100,033 by December 12, 2024—a return of about 126% year-to-date. In contrast, during the same period, the S&P 500 has experienced a modest increase of just over 27%, while ethereum has risen about 64%.
While these returns can be enticing, it is crucial to approach such volatility with caution. For instance, bitcoin reached a peak of approximately $65,000 in November 2021 before plummeting to $16,625 by January 2023—a staggering decline of 74%. Consequently, investors who entered the market near the 2021 high may have faced extended periods of losses if they remained invested.
The allure of cryptocurrency often stems from stories of early adopters striking it rich, yet it’s vital to invest only what you can afford to lose. Allocating a conservative portion of your investment portfolio to digital assets could be wise, ensuring that it doesn’t jeopardize your financial stability. Digital assets are not suitable for every investor, but a financial advisor can assist in integrating them into a well-rounded portfolio strategy.
Investing in digital assets carries considerable risk, including the potential for total loss, driven by market volatility, regulatory changes, and cybersecurity threats. Furthermore, the unregulated nature of digital asset markets often means fewer protections compared to traditional investments.
Halbert Hargrove Global Advisors, LLC is a registered investment adviser. Our insights are intended for informational purposes and should not be construed as personalized investment advice. We recommend consulting with qualified professionals for any specific legal, tax, or accounting considerations relating to your investments.
