Broker Check

Quarterly Newsletter 03/31/2024

Dear Clients:

 

In my opinion, something historic happened on January 10th that didn’t get as much attention as it should have. The SEC approved the trading of spot bitcoin ETF’s. Now half of you are probably asking yourselves, what language is Craig speaking, and the other half of you are thinking, thank goodness, it’s about time! This letter is not an endorsement for, or disapproval of Bitcoin, but simply an explanation of some of the attributes of it that I find interesting. I believe you should research Bitcoin further, and if you agree with this analysis, consider it as a diversification tool to your asset mix.

 

Bitcoin as a store of value:

 

Bitcoin is the first, oldest and largest crypto currency in the world. Legend says it was created by a man named Satoshi Nakamoto on January 3, 2009. Unlike government-backed fiat currencies, there is no centralized intermediary able to influence the supply or demand of Bitcoin. The network itself mints Bitcoin based on pre-programmed, algorithmically applied directives designed to ensure a deflationary monetary policy. This code is open sourced and transparent, enabling any interested developer to affirm its rule- based nature. 

 

Bitcoin is a “sovereign bearer asset” meaning it can protect against monetary debasement and systematic financial risk. New rules implemented by the Financial Accounting Standards Board (FASB) make it easier for corporations to hold Bitcoin in their treasuries. They can now value Bitcoin based on its current fair value verse its historical cost. Some countries have already switched over to using Bitcoin as their reserve currency including El Salvador and Central Africa Republic while others allow it to be used to transact business including the United States, European Union, Japan, Singapore and Canada.

 

Bitcoin is becoming a key choice for citizens in countries where internal inflation or weak banking systems are raising concerns about buying power. Since Bitcoin is not controlled by any government, it is often seen as a refuge in periods of economic and geopolitical risk and uncertainty. It can be transferred and accessed globally and be used to pay for goods and services in cross-border situations without a need to exchange the asset for the local fiat currency. 

 

Bitcoin is also seen as a vehicle to help foster economic inclusion for under-banked or un-banked individuals. Many people around the world do not have bank accounts and use local fiat currency to transact business. Bitcoin solves this issue because an individual can download a Bitcoin digital wallet, using a computer or cell phone, and then transact peer to peer transfers with limited transaction fees.

 

 

 

 

Bitcoin as a digital commodity:

 

A commodity is a raw material or primary agricultural product that can be bought and sold, such as gold, copper or coffee. Typically, there is a limited supply of the commodity and price is determined based on supply and demand. Bitcoin works similarly. There is a limited supply and people view it as a synthetic hard commodity. Bitcoin is the only major asset where supply is not a function of demand. New Bitcoin are created when a block of newly verified transactions is added to the ledger. This is an algorithmically administered process that is automatically executed via code. There is no optionality in the process. Every time a block of transactions is added to the blockchain, new Bitcoin will be created. This process will continue until the full 21 million coin have been minted. When 21 million Bitcoin have been created, this process will stop, and no more Bitcoin will ever be created. At present, just over 19 million Bitcoin are currently in circulation. The fixed supply of Bitcoin help to limit the inflationary concerns that affect many fiat currencies. Many governments often choose to adjust their monetary supply to meet their policy goals. Just look at the United States as an example. From March 2020 to the peak in July 2022, the US M2 supply increased by $5.725 trillion*. 

 

With any type of hard asset or agricultural product you have to safely store it, and that costs money. Bitcoin does not have this issue because once you set up your digital wallet, there typically are no holding fees. Bitcoin balances and transactions can be instantly validated, transferred, and audited due to the digital asset existing solely on the blockchain and in investors’ encrypted wallets. Bitcoin attributes include- limited supply, deflationary pricing schedule, transparency and transferability.

 

So, as I mentioned before, the idea that the SEC has now approved the creation and trading of Bitcoin ETFs is huge. It opens up the door for people to invest in a new asset class not tied to the stock market, bond market or commodity market. Purchasing Bitcoin via ETFs is a cost-effective way to get exposure to Bitcoin. Investing in a Bitcoin ETF can create diversification within a portfolio. 

 

Cetera has limited options when it comes to the purchase of Bitcoin ETFs. If you are interested in learning more, feel free to give the office a call.

 

As always, thank you for entrusting our firm with your financial future. We look forward to pursuing a successful and prosperous future.

 

* https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/us-money-supply-falls-at-unprecedented-rate-possibly-cooling-inflation-75941751

 

Source: ”Bitcoin as an Investable Asset,” Franklin Templeton Digital Assets February 23, 2024- https://www.franklintempleton.com/insights/disruptive-technology/digital-assets

 

Content is for general information only and not intended to provide specific advice or recommendations for any individual. All Performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

 

Cetera does not offer any direct investments, endorsements, or advice as it relates to Bitcoin or any crypto currency. This is for informational purposes only.

 

Investors should carefully consider investment objectives, risks, charges, and expenses. This and other important information is contained in the prospectus and summary prospectus, which can be obtained from a financial professional and should be read carefully before investing.


A diversified portfolio does not assure a profit or protect against loss in a declining market.