$4.6 Billion Flows Into Bitcoin ETFs

Dear Reader,

At the end of last week, something big went down in the crypto world.

Gary Gensler, chair of the Securities and Exchange Commission, gave a rare interview on CNBC in which he really showed how he’s thinking about digital assets:

Investors should be aware that the underlying asset is a highly speculative, volatile asset, and amongst its use cases, it’s really for illicit activity: money laundering and sanctions and ransomware and the like… It’s a speculative store of value. Is it being used as a payment anywhere, are we buying cups of coffee with it? Not really.

He makes a good point here. Bitcoin got scooped up by bad actors almost immediately after its inception.

I still remember when people were using dark web sites like the Silk Road to buy dirt-cheap drugs you couldn’t get anywhere else. The only catch? You had to use Bitcoin. It was a huge story when the FBI took down Ross Ulbricht, the mastermind behind Silk Road. The U.S. Marshals seized all his bitcoins, more than 144,000 of them. They’d be worth $6.2 billion today. Ulbricht is currently serving out his double life sentence plus 40 years without the possibility of parole.

Now, I’m not here to say he shouldn’t have been put in jail for hosting a website that facilitated drug trafficking, but you gotta admit, the way he did it was pretty nifty. The site was hosted via the Tor network, which basically hides a user’s location and IP address. Now, in order to facilitate a purchase, you had to use Bitcoin. You could maintain your anonymity of the purchase if you didn’t tie your legal name to your crypto wallet. Keep in mind, since crypto is decentralized, the point is for every transaction to be viewable on the open ledger.

It was a smart idea — until, of course, he was outsmarted by detectives. And it wasn’t just drugs being sold on the site. You could buy fake passports, too. Then there were also some alleged murder-for-hire charges against Ulbricht… so, yeah, the judge threw the book at him. Unfortunately, it hasn’t done anything to prevent other people from doing the exact same thing, but that’s a different discussion.

Around the same time when Bitcoin was first being harvested and introduced to the world, the best argument I heard for it was its ability to run on the blockchain. People always claimed the blockchain would replace complex real estate transactions because of the decentralized open ledger system. I’m still hopeful, but that use case remains to be seen. Gensler touched on this:

No doubt, there are innovations within this field… which I taught about at MIT, around a ledger system, it’s just an accounting system called the blockchain technology. But there’s an irony. In the midst of this, Satoshi Nakamoto said this was gonna be a decentralized system… and this has led to centralization… this was about centralization and tradition means of finance that investors who could already express themselves in bitcoin, you could already before this week buy it through major brokerage houses, but now you can buy through this thing called an exchange-traded product.

When asked about whether Bitcoin could get banned in the future, he replied, “The American public is aware of this. It’s rife with conflicts. It’s rife with fraud and abuse. Without prejudging any one token, many of these tokens, I would suggest a majority of these tokens, are actually securities under the securities law. So the platforms, the various places that you might buy or sell crypto security tokens, need to come into compliance with the federal laws.”

What he’s saying is Coinbase better get its act together. According to Coindesk, “Most qualified custodians today secure equities, bonds or digitally tracked fiat balances, all of which are fundamentally legal agreements, which can’t simply be ‘stolen.’ But Bitcoin, like cash and gold, is what’s known as a bearer instrument. A successful crypto hack is like a bank robbery in the Wild West. As soon as it’s in the hands of a thief, the money is simply gone. So for a crypto custodian, one mistake is all it takes for the assets to disappear entirely.”

Coinbase stock retreated more than 10% last week even after the Bitcoin ETF approvals.

But all this ETF talk made me want to dig a little deeper into this financial product. And are they good investments? If so, what are the Bitcoin ETFs trading today?

WTF Is an ETF?

An exchange-traded fund (ETF) is a type of investment fund and exchange-traded product that holds a diversified portfolio of assets such as stocks, bonds, or commodities. ETFs are traded on stock exchanges, allowing investors to buy and sell shares throughout the trading day at market prices. ETFs are designed to track the performance of a specific index, sector, commodity, or asset class.

ETFs offer investors a way to gain exposure to a broad range of assets without having to buy each individual security separately.

There are even various investment strategies within ETFs, including:

• Diversification: Investors can achieve diversification by investing in an ETF that tracks a specific index or sector, spreading their risk across multiple assets.
• Sector or industry exposure: ETFs exist for various sectors and industries, allowing investors to focus on specific areas of the market, such as technology, healthcare, or energy.
• Market timing: Traders can use ETFs to implement short-term trading strategies like options or to capitalize on market trends.
• Income generation: Some ETFs focus on high-dividend stocks or fixed-income securities, providing investors with a source of income.
• Hedging: Investors can use inverse ETFs that move in the opposite direction of an underlying index for asset to hedge their portfolios against market downturns.

Three of the largest and most widely traded ETFs include:

• SPDR S&P 500 ETF (SPY): This ETF tracks the performance of the S&P 500, one of the most widely followed equity indexes, representing 500 of the largest U.S. companies.
• Invesco QQQ Trust (QQQ): This ETF tracks the Nasdaq-100 Index, which includes 100 of the largest non-financial companies listed on the Nasdaq stock exchange, with a focus on technology stocks.
• iShares MSCI Emerging Markets ETF (EEM): This ETF provides exposure to equities in emerging markets, offering investors the opportunity to invest in a diverse set of companies in developing economies.

Here’s are three of the most heavily traded Bitcoin ETFs that just got approved:

• BlackRock’s iShares Bitcoin Trust (IBIT),
• Grayscale Bitcoin Trust (GBTC)
• ARK 21Shares Bitcoin ETF (ARKB)

If you want info on further funds, the Block notes, “The 11 tradable spot Bitcoin ETFs approved on Wednesday were funds from Bitwise, Grayscale, Hashdex, BlackRock, Valkyrie, BZX, Invesco, VanEck, WisdomTree, Fidelity, and Franklin Templeton.”

Now let’s enjoy the trading week.

(And maybe buy some puts on Coinbase.)

Stay frosty,

Alexander Boulden
Editor, Wealth Daily

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After Alexander’s passion for economics and investing drew him to one of the largest financial publishers in the world, where he rubbed elbows with former Chicago Board Options Exchange floor traders, Wall Street hedge fund managers, and International Monetary Fund analysts, he decided to take up the pen and guide others through this new age of investing.

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