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Direct exposure to crypto might be better than ETFs, executives say

Direct exposure to crypto might be better than ETFs, executives say
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Industry executives said last week that Bitcoin ETFs may be more valuable to financial advisors and their clients than other investor groups.

Despite the appeal of the Bitcoin ETF, direct exposure to cryptocurrency may work best for a broader group of Americans, Tyrone Ross, CEO of technology firm Onramp Invest, said in a panel last week.

For example, stablecoins, which are usually backed by fiat currency or gold, will be able to facilitate faster money transfers than most financial institutions, he explained. Such an advantage, he added, was valuable to Americans who were in dire straits and needed money immediately.

“I would say this grew up in a home that doesn’t deal with banks — crypto is a godsend for the underserved,” Ross said.

This article was previously published by Ignites, a title owned by the FT Group.

However, Matt Hogan, chief investment officer at Bitwise Asset Management, said on the Morningstar-hosted panel that many retail investors haven’t owned crypto yet because there hasn’t been an ETF that would help them do so. He added that the ETF would also help investors hold bitcoin securely, as they were less likely to misuse their passwords or be hacked.

“The beauty of ETFs is that they seamlessly fit into the way financial advisors operate,” Hogan said. “That’s why it will change the rules of the game and open the market in a big way.”

The Bitcoin ETF has yet to be approved by the Securities and Exchange Commission. Hogan noted that the regulator also took years to get along with opaque ETFs and even gold-backed ETFs.

“No one accused the Securities and Exchange Commission of being a Lamborghini,” he said.

More than 10 fund providers are awaiting approval of their proposed Bitcoin ETFs. But SEC chief Gary Gensler noted that the regulator would be more comfortable approving funds that invest in bitcoin futures, rather than those that invest in the base currency.

Hogan said regulators are concerned about market manipulation. He added that they held cryptocurrencies to a higher standard because they were worried that too many people had come into the space when it was still too risky.

But Hogan said that it is already more likely that investors will invest in cryptocurrency even without the help of their advisors. Therefore, for advisors to have a serious conversation with clients about cryptocurrency, they first need to understand the technology behind it, he said.

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Hogan explained that the underlying blockchain technology in Bitcoin can only perform certain actions, such as sending or receiving cryptocurrency. In the meantime, Ethereum can be programmed to act as a lending agent, act as a stock exchange, and even host digital art. But bitcoin was more valuable than ethereum because its software interface was more secure than ethereum, and because the latter was a newer technology, he said.

“We need to break the notion that these are coins and [instead] You need to think of them as technologies that enable us to do new things.”

“And then you can either evaluate these techniques and decide what you think is the best, or you can buy a basket of various of them in an index.”

* Ignites is a news service published by the FT Specialist for professionals in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignites.com.

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