The Wall Street machine needs to be fed, and pushing more crypto ETFs is an obvious choice, especially given the attention the Bitcoin (BTC) product has received. This basically means that thousands of salespeople hold meetings, show off a new product, say what it does, and see if people want to buy it.
But selling an ETF (ETH) can present an interesting dilemma for issuers. Investors may have just purchased a Bitcoin ETF, so the practical need to activate portfolios has already been met. Why do they need another tool to diversify cryptocurrencies?
It’s something Swee Chung, CEO of CF Benchmarks, a digital asset index provider and partner company in the BlackRock iShares Bitcoin ETF (IBIT), has been thinking about, especially after… I recently published a cheat sheet Explaining the benefits of Bitcoin-backed securities to investors.
Defining Bitcoin technology and its potential application to finance is part of the explanation, but Chung believes this is secondary to the investment role of a Bitcoin ETF: a small allocation leads to portfolio diversification. Enhances total risk-adjusted return.
“The key thing is how bitcoin behaves and its price history,” Chung said in an interview. “When you put bitcoin inside a portfolio that has stocks and bonds and cash, it’s just the most effective diversification tool in the history of investing. You put a little bit in and the Sharpe ratio doubles.”
It’s becoming really interesting how a major financial institution — whether it’s BlackRock, Franklin Templeton, Fidelity, etc. — markets an ETH ETF to the typical TradFi investor, Chung said. “Because you’ve already sold bitcoin by going the diversification route, someone has already put 1.5% or 2% of bitcoin into their portfolio.”
In a sense, Fink, the head of BlackRock, has already begun to dive into the complex world of Ethereum by mentioning the tokenization, a much-vaunted concept among TradFi firms these days and something that most ETF issuers likely believe wholeheartedly. But such an educational journey would also have to explain smart contracts and decentralized finance (DeFi), Chung said, not to mention the worm can that is blockchain signing and… The Securities and Exchange Commission’s opinion on this.
Of course, the main difference between Bitcoin and Ethereum is how the latter stays away from draining energy Proof of work Security system to a greener auditor model.
“I don’t think ESG is the way it’s going to be marketed. Do you really want to go there given all the controversy around ESG investing today already? Probably not,” Chung said.
BlackRock declined to comment.