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Cryptocurrencies have always been known to be exceptionally volatile, and in 2022 the historic crypto rally finally came crashing down. Now would be a good time to review the longer-term fundamental upside and downside case for cryptocurrencies. And for those who are still crypto-bulls, now may be a good entry point to add exposure to cryptocurrencies, which can be done quickly and easily through the use of ETFs.

What’s Going on in the Crypto Market in 2022?

2022 has been a tough year thus far for cryptocurrencies, with the vast majority of them decreasing substantially in value. Even the most well-known cryptocurrencies were not immune from huge drawdowns, including:

Bitcoin; down ~53% YTD

Ethereum; down ~66% YTD

As well as cryptocurrency-related equities such as:

Coinbase Global; down ~77% YTD

From a macro perspective, inflation risks and monetary policy has contributed to the risk-off environment that led to a sell-off of many “risky” assets such as equities and cryptocurrencies. While proponents of cryptocurrencies have previously defined crypto as “the new gold,” it clearly does not have the same hedging properties as the physical commodity.

Investors must be aware of the risk and volatility that comes with investing in crypto assets and equities. Despite this, for those who wish to take a long-term perspective, it’s important to review the “bull” and “bear” cases for cryptocurrencies. Keep in mind that there are many cryptocurrencies available; however, the focus will be on the larger market capitalization cryptocurrencies such as Bitcoin and Ethereum.

The “Bull” Case for Crypto

Many investors may still tout crypto as the “digital gold,” and while it has not hedged portfolios thus far in 2022, it is very clear that the fundamental drivers for crypto are not closely related to other asset classes such as equities, fixed income, real estate etc. Therefore, investors may want to use bitcoin as a diversification tool, which in itself makes cryptocurrencies a viable asset class.

Furthermore, cryptocurrencies and the underlying blockchain technology have many use-cases beyond replacing fiat money. The cryptography and distributed ledger technology does lend itself to cryptocurrencies being regarded as an asset. 

Lastly, there is already momentum for adoption of cryptocurrencies. Governments around the world have embraced their adoption, and institutional financial companies have also acknowledged their viability as an investment. A clear example is the offering of crypto-ETFs, and these implementations made by governments and institutions will not be reversed overnight, if at all.

The “Bear” Case for Crypto

Whenever there is an asset that increases in value extremely quickly, there is always a risk that a bubble is forming. This happened with internet and technology stocks in the “dot-com bubble,” it happened with real estate prices before the “2008 housing bubble”, and from the inception of cryptocurrencies until the end of 2021, there appeared to be a “crypto-bubble” in which the price of cryptocurrencies continued to increase based purely on the belief that it will continue to increase. This over-speculation leads to price exuberance that compounds, especially as many investors continue to buy into the “hype” without considering fundamental factors.

Many would argue that cryptocurrencies are worthless assets that only have value attributed to them due to the greater fool theory, in which market participants purchase an asset purely based on the belief that they can sell it at a higher price in the future.

Another factor is that the loose monetary policy and continuous injection of liquidity by central banks have led to the over-invested crypto market, where investors were continuously seeking higher and more riskier returns. Now that monetary policy is finally tightening, these assets will be left out to dry.

Ways to Invest in Crypto ETFs

Although cryptocurrencies have had a very tough year thus far, Canadians may still want some exposure to cryptocurrencies. Whether that be due to a belief in the asset or technology or simply to use as a diversification tool, some ETFs available are:

BTCQ.U (3iQ CoinShares Bitcoin ETF)

• AUM: $255.3M
• Expense Ratio: 1.13%
• YTD performance: -56.0

BTCC.B (Purpose Bitcoin ETF)

• AUM: $315.7M
• Expense Ratio: 1.13%
• YTD performance: -54.7%

ETHX.B (CI Galaxy Ethereum ETF)

• AUM: $195.9M
• Expense Ratio: 0.45%
• YTD performance: -67.8%

BTCC.U (Purpose Bitcoin ETF)

• AUM: $129.9M
• Expense Ratio: 1.13%
• YTD performance: -56.1%

BTCX.B (CI Galaxy Bitcoin ETF)

• AUM: $136.4M
• Expense Ratio: 0.45%
• YTD performance: -54.8%

Data for this article is as of July 6th, 2022.

Disclaimer: This article is limited to the dissemination of general information pertaining to investment strategies and financial planning and does not constitute an offer to issue or sell, or a solicitation of an offer to subscribe, buy, or acquire an interest in, any securities, financial instruments or other services, nor does it constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment.