Cryptocurrency investors spent much of 2023 waiting for good news.
Following the late 2022 collapse of FTX — at the time the world's largest cryptocurrency exchange — popular digital currency bitcoin traded just north of $16,000 to start the year, a far cry from the more than $60,000 it traded for during 2021's crypto boom.
Over the last few months, though, things began looking up. Crypto investors became more and more convinced that the SEC would approve a years-long effort from fund companies to bring a spot bitcoin exchange-traded fund to market, a move crypto boosters expected to stoke demand for the popular coin.
By the time news broke on Jan. 10 that 11 new bitcoin ETFs would begin trading, crypto investors were taking a victory lap, having bid the coin's price up by 155% in calendar year 2023.
So, what now? Are we off to another crypto bull market, or have bitcoin enthusiasts gotten ahead of themselves?
"This is definitely an inflection point," says Brian Vendig, president of MJP Wealth Advisors in Westport, Connecticut.
Here's what he and other experts say to expect from here.
Expect more demand, and more new funds
The new wave of bitcoin ETFs makes it easier than ever for investors in more traditional assets, such as stocks and bonds, to dip their toes into crypto. Instead of having to open a separate account to buy crypto — often with high trading fees — investors in the ETFs can hold bitcoin right alongside their other investments in their brokerage accounts.
That's just the beginning, says Matthew Sigel, head of digital assets research at VanEck, an investment firm that offers one of the 11 new funds.
"We think it was a huge step forward that will unlock significant demand, given the cost savings for the retail buyer and security available to institutional purchasers," he says.
The new ETFs will soon allow advisors who deal with high net worth clients and big money institutions to start incorporating crypto into their portfolios, he adds.
"They don't have the ability to put these bitcoin ETFs into client discretionary portfolios, yet," Sigel says. "But we can observe several banks and brokers already preparing these models, which we expect to emerge later this year."
Expect more new crypto ETFs, too — and in different flavors.
"It seems inevitable that we'll have ETFs tied to ether, as a secondary cryptocurrency for people to invest in," says Todd Rosenbluth, head of research at VettaFI. In the meantime, he says, "the door is now open for a range of ETFs that include bitcoin as well as other assets."
Experts say these might be as simple as portfolios that combine bitcoin exposure with mainstream investments, such as those in the S&P 500. More complex so-called alternative strategies are likely to emerge as well, such as funds that use a bitcoin holding to hedge against the performance of other investments.
The outlook for crypto: 'It's all still speculation'
The rapid rise in bitcoin's price of late would feel huge for a traditional asset, such as a stock or bond, but isn't really anything to write home about in Cryptoland, says Stephane Ouellete, founder and CEO of FRNT Financial.
"You've seen some speculation come in on the announcement of bitcoin ETFs, but all the metrics we look at to gauge where we're at in the market cycle tell us that we're so far away from the FOMO market where everyone and their dog is talking about crypto," he says.
Measures such as Google Trends searches for bitcoin and cryptocurrency, financing for crypto companies and investor trading volumes are all relatively muted, he says. In other words, if the crypto market is going to enter into another bull trading cycle, we're in the very early days of it.
That doesn't necessarily mean it's time to pile in, though. Bitcoin experts aren't buying because of an ETF rollout. Rather, they believe in bitcoin's long-term potential as a store of value and as an alternative payment system in developing countries. They believe in a future where blockchain technology develops into a bigger part of the U.S. economic ecosystem.
That may never come to pass. And even if you believe in a long-term thesis, remember — cryptocurrencies don't trade based on underlying fundamentals the way that stocks do. That means prices move purely based on investor activity.
"It's all still speculation. That hasn't changed," says Vendig.
If you're thinking about adding crypto to your portfolio, ask yourself what role it can play in getting you to your personal financial goals, he says.
"If an investor can answer that appropriately, then you can actually figure out the sizing you should have," he says. "Do you want to dip your toe into this asset class? Or is that asset class not even rational for you as an investor?"
If you invest in crypto, Vendig recommends keeping things small. "I'd say 1% on the more conservative side, and no more than 5% of your total portfolio if you're a growth-focused investor."
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