2021 was a meteoric year for crypto, with bitcoin looking to end the year almost 70% up from its January starting value, the first big crypto company (Coinbase) going public in April, and the launch of the first SEC-approved bitcoin futures ETF in October. This year experienced a lot of volatility in the crypto space, but overall, crypto assets are worth an astounding $2 trillion as the year draws to a close; looking ahead to next year, analysts anticipate some major movement for bitcoin, reports CNBC.
Bitcoin is best known for its volatility and the allure of the gains that it can provide. However, several analysts believe that the surge seen this year could be erased in a potentially massive crash next year, as has been the historical case for the most popular cryptocurrency. In 2018, bitcoin once reached a high of almost $20,000, only to crash down to around $3,000 within the space of a few months.
“Without question, Bitcoin’s price chart appears to track many historical asset bubbles and busts and is carrying a ‘this time it’s different’ narrative just like other bubbles,” said Todd Lowenstein, chief equity strategist of Union Bank’s private banking arm.
Carol Alexander, professor of finance at Sussex University, goes a step further, expecting bitcoin to fall as low as $10,000 next year, completely erasing any gains from this year on the bearish sentiment that bitcoin doesn’t have fundamental value.
A more middle-of-the-line view is that bitcoin is currently being utilized as a hedge against rising inflation. With interest rates looking to increase potentially multiple times next year, bitcoin’s momentum could potentially be deflated.
“Goldilocks conditions are ending and the liquidity tide is receding which will disproportionately harm overvalued asset classes and speculative areas of the market including cryptocurrencies,” Lowenstein said.
Not all agree with this assessment, however, with some instead believing that crypto has already priced in the odds of rate increases. “The biggest risk factor, namely [quantitative tapering] by the Fed, has been decided and likely priced in already,” said Yuya Hasegawa, crypto market analyst at Bitbank, a Japanese crypto exchange.
Investing Broadly in Crypto Reduces Risk
The Invesco Alerian Galaxy Crypto Economy ETF (SATO) invests across the crypto industry in a variety of crypto-related categories and invests across all market caps within developed and emerging markets. By investing across a range of crypto assets, investors can capture potential within the space while also mitigating the risk compared to a singular spot exposure.
The fund seeks to track the Alerian Galaxy Global Cryptocurrency-Focused Blockchain Equity, Trusts and ETPs Index, an index that is divided into two different security types: digital asset companies that are engaged in cryptocurrency or the mining, buying, and enabling technologies of cryptocurrency; and exchange traded products (ETPs) and private investment trusts traded over-the-counter that are associated with cryptocurrency.
To be considered for the index, a company must have a minimum full market cap of $50 million, a minimum float-adjusted market cap of $10 million, a minimum free-float factor of 20%, a minimum average daily trading value of $1 million over the last three months, and it must also be listed on a global exchange. This portion of the index is given an 85% weighting.
ETPs and private investment trusts must have a minimum market cap of $1 billion (or $500 million for current constituents), a minimum average daily trading value of $15 million over the last three months, and an open structure to be considered for the index. This portion of the index is given a 15% weighting.
SATO does not invest directly in bitcoin, cryptocurrencies, crypto assets, or in initial coin offerings or futures contracts for cryptocurrencies, and it is non-diversified. The fund may gain exposure to securities within the ETP and Trust component indirectly through a Cayman Islands subsidiary. The subsidiary is wholly owned and advised by Invesco and may constitute no more than 25% of the fund.
SATO carries an expense ratio of 0.60%.
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