Patcay.com – The cryptocurrency community has long embraced the “HODL” (Hold On for Dear Life) ethos, enduring bitcoin’s wild price swings without flinching. However, this steadfast approach may wane as exchange-traded funds (ETFs) become more prevalent, attracting investors who prefer regular portfolio rebalancing.
In recent years, bitcoin has seen increased institutional adoption. This trend is expected to accelerate with the introduction of ETFs that track bitcoin’s price, particularly as more financial advisors and brokerages offer these products to clients.
“You have so many people in this community who are just diamond-handed holders,” remarked Donald Marron, Director of Economic Policy Initiatives at the Urban Institute, at the 2024 Vision conference in Austin, Texas.
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“If you convince them to allocate 1% [to bitcoin] today and never touch it, they would see enormous wealth gains if you were on those roads to a much higher bitcoin price.”
He continued, “If you have people who are actually doing what I view as traditional asset allocation, they’re going to face a question every quarter, every month, every year about whether they rebalance. From a risk management point of view, rebalancing is a good thing. But rebalancing also means that they’re going to be sellers along this journey.”
Julio Moreno, Head of Research at CryptoQuant, noted that eventually, every HODLer becomes a seller, particularly in bull markets when long-term holders typically offload some of their accumulated bitcoin from bear markets.
Matt Hougan, Chief Investment Officer at Bitwise Asset Management, which issues the Bitwise Bitcoin ETF (BITB), advocated for treating bitcoin like any other asset.
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“Add it into a portfolio and include the rebalancing process,” he said at the Vision conference, hosted by the Digital Assets Council of Financial Professionals. Hougan highlighted bitcoin’s traditional four-year cycle of three good years followed by a down year, suggesting that rebalancing could enhance investment performance measures like Sharpe ratios, which assess return relative to risk.
Rebalancing might also mitigate bitcoin’s infamous volatility, a major deterrent for many potential investors, according to Michael Allegue, an investment officer at MassMutual. “As more institutional capital comes in, there’s potential for volatility dampening. Many firms, including ours, will likely be rebalancing accounts – they’re not going to be purely buy-and-hold,” Allegue said.