What Investors Get Wrong About Bitcoin

September 18, 2019

Michael SonnensheinBitcoin's price might have peaked in 2018, but as an investment, the digital currency is having its moment in the sun.

One of the most-talked-about investment themes of the Wealth/Stack conference this month was digital currencies, such as bitcoin, Ethereum and others. Conversations went well beyond "what is bitcoin?" and instead dug into the nitty-gritty: how much advisors should allocate to digital assets; how to efficiently trade crypto instruments; and where to access digital currencies, when so many online brokerage platforms still don't carry them.

Grayscale Investments offered answers. As the largest digital currency asset manager worldwide, Grayscale has more than $2.7 billion in assets invested across 10 products, including the Grayscale Bitcoin Trust (GBTC).

While at Wealth/Stack, ETF.com sat down with Michael Sonnenshein, managing director for Grayscale Investments, to get his take on how advisors who don't know their Ethereum from their Ethereum Classic can quickly get up to speed with digital currency investing.

ETF.com: What do you see as the biggest potential of digital currencies, like bitcoin?

Michael Sonnenshein: It's the promise of digital currency to create financial inclusion. It hasn't done so yet. But it could.

When I think about the different areas of the world I've traveled to, many of these economies are rooted in cash. A lot of folks don't have access to bank accounts or lending, and they can't finance a business or an education.

Often, too, they're living in a place where the government is ruining their currency, with inflation or debasement or whatever it is. So digital assets are a new technology that could be used as an exchange of value for money that could really help advance people's lives.

ETF.com: However, the “conventional” wisdom, as much as there is any, is that you shouldn't look at crypto assets as a way to exchange money: They're an asset, an investment.

Sonnenshein: I'd say advisors and investors aren't really thinking about allocating to digital currencies, because they just don't have enough knowledge about them. Advisors look at the investable universe, and the options available to them in a brokerage account, and they see stocks, bonds, ETFs, mutual funds. At the moment, digital currency falls outside that infrastructure.

However, you’re seeing a lot of legacy players getting involved in digital assets. They see the potential to eliminate middlemen and fees, and to scale things faster.

ETF.com: A lot of investors liken bitcoin to digital gold. Is that fair?

Sonnenshein: Absolutely. Gold was perhaps the right store of value for the physical world, but [investors] have realized that the world is moving digitally, and we need a digital store of value.

Bitcoin has a lot of the same attributes, but a few additional positive ones that make it a better store of value than gold. It's verifiably scarce. It's more portable. It's more divisible.

ETF.com: It's more volatile, though.

Sonnenshein: No question about that. But you have to look at it against the backdrop of this: Is the world we live in a physical one, or is it digital?

Digital asset exposure is certainly not for everyone. It's risky and volatile, and it's early days for the asset class. But if you're not at least thinking about digital assets when putting together a portfolio, you're doing yourself or your investors a disservice.

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