Interview with Crypto’s Rising Star (Part Two)

As cryptocurrency assets continue their ascent this year, now’s a good time to tap the expertise of Alex Benfield, our in-house specialist in crypto investing.

Before joining our team, Alex was a crypto analyst at Weiss Ratings. This is part two of my interview with Alex. My questions are in bold.

The SEC’s approval this year of crypto-linked exchange-traded funds (ETFs) is a game-changer. How do you think it will affect crypto investments in particular and retail investing in general?

These new ETFs are the biggest thing to happen to Bitcoin (BTC) and the crypto market in quite a few years. They’ve drastically changed the market’s dynamics. The new ETFs aren’t necessarily the first crypto ETFs, but they are the first spot ETFs backed and settled in Bitcoin.

It is also very significant that publicly traded crypto exposure has evolved from grayscale trusts and futures-based ETFs to spot ETFs backed by BlackRock (NYSE: BLK) and Fidelity. Bitcoin is graduating in the eyes of traditional finance.

Soon Bitcoin and these ETFs will be hot commodities for the TradFi entities, financial managers, and funds alike. But those guys move slowly. Right now, retail investors have the opportunity to jump in ahead of TradFi players and pile up as much Bitcoin and crypto exposure as possible before the big guys start buying.

TradFi moves slowly and they have lots of checks and balances and hoops to jump through before they can make a big move like adding exposure to these ETFs. Retail has no such obstacles.

I see parallels between the SEC’s crypto ETF action and the creation in 2004 of the first gold-based ETF, the SPDR Gold Trust ETF (GLD). How are these two events similar? Will crypto ETFs exert the same magnitude of influence as GLD?

I believe the gold ETF is a very good example to follow as to what one could expect to happen with Bitcoin following the launch of these recent ETFs. The price of gold rallied over 250% over the first seven years after the GLD ETF launch.

We’re talking about gold, a precious metal whose value has been established for thousands of years. Bitcoin is a technology and store of value that is still very much in its infancy stages and whose value is nowhere near established on a mainstream level. The price of BTC could grow by multiples more than gold did after that ETF launch.

The GLD ETF increased the ease and access to gold and resulted in a massive bull run. I expect something similar to happen with Bitcoin on a larger scale. There was far less exposure and access to Bitcoin before these ETFs launched due to its nascent state.

The ETFs were launched at the beginning of this year, and rumors had been swirling for months beforehand, yet BTC has already climbed 16% so far this year and just broke above $50,000 for the first time since late 2021, just after the last bull market peak, and is up about 85% since these rumors started swirling in the summer of 2023.

The craziest part is that we’ve barely begun to feel the impact of these ETFs. Wall Street moves slowly and these ETFs are less than two months old. There will be more demand in the months to come, and I’m excited to see what happens to the price of Bitcoin as that demand comes.

Timing tends to be a fool’s game, but isn’t there a sense of urgency for investors when it comes to the events and trends you’ve been discussing? Isn’t it true that when, say, Bitcoin begins a bull rally, it gets away from investors very fast?

Bitcoin bull markets tend to kick off violently and rapidly, and while one can tell that Bitcoin and the crypto market have started to pick up recently, it’s very hard to tell when the mania and the real bull market will kick off.

Bitcoin soared 156% in 2023. Not only did BTC outperform all major asset classes in 2023, it racked up its best year since 2020 (see chart).

BTC can smash through its previous all-time highs in a matter of days, and 10%+ candles are common at the beginning of these bull markets. Crypto bull markets can run away from investors very quickly. That’s why investors need to begin adding exposure very soon.

This is a U.S. presidential election year, and it promises to be chaotic. We’re also witnessing a lot of geopolitical turmoil. Aren’t crisis conditions favorable for crypto?

Chaos tends to bring volatility to markets which can be either a good or bad thing depending on the asset class and market. Volatility tends to be good for cryptocurrency and can lead to bullish price action. That is likely due to Bitcoin’s position as a store of value.

However, volatility also is a great thing for trading opportunities in general, because movement and volatility are the fuel needed for good trades. Price movement in either direction opens up opportunity.

Now, geopolitical and macroeconomic chaos has fueled bullish runs in crypto in the past, and I believe it could do so once again for the crypto market over the next year or two. But I can say for certain that it will provide countless trading opportunities for this market over that same timeframe.

Why is crypto an effective hedge against inflation and crisis?

I think the jury is still out on whether or not Bitcoin is really an inflation hedge, but it seems that all over the world more and more people have come to the conclusion that Bitcoin is a very effective store of value. That is why it does well in times of panic and crisis. People tend to move towards value stores like gold and Bitcoin when they’re concerned about other markets and currencies.

However, Bitcoin offers a lot of use and value over gold when it comes to the average person using it as a store of value. For one, Bitcoin is easier to access; almost anyone with Internet access can buy Bitcoin. Secondly, Bitcoin is far easier to take possession of and to exchange. It’s operated digitally on the blockchain and can be sent between two addresses in a matter of minutes, whereas gold is heavy and bulky and not easy to ship between two parties.

Most people don’t feel comfortable even holding physical gold on their own, so they tend to buy other exposure to gold like an ETF. That’s just not the same as owning the underlying asset on its own, and for that reason, I will always prefer holding spot Bitcoin over gold.

You often refer to crypto “blue chips.” Which specific crypto assets are you referring to and why do you think of them as blue-chip quality?

There are a lot less crypto blue chips than most people think. There are perhaps up to two dozen very high-quality cryptocurrency projects that I believe have the staying power to last for the next decade-plus. These projects consist of Bitcoin, Ethereum (ETH), Polygon (MATIC), Chainlink (LINK), Solana (SOL), Aave (AAVE), and only a few others.

These are the main projects I like to trade because I believe holding these projects for years is a bullish strategy in and of itself. They are available on most exchanges, they have the biggest network of active users and supporters, and they already have concrete value. Many hot new up-and-coming altcoins have come and gone over the last few years while the blue chips have continued to build and grow, both in price and network activity.

How does “staking” work and why should crypto investors consider this investment method?

Staking is a way to participate in the underlying crypto blockchains and earn a yield at the same time. There are many different ways of “participating” in the networks, but they all tend to result in a yield that is at minimum competitive to what investors can find through TradFi solutions, and at best a few multiples higher than any yield offered from a bank.

Staking can be a complicated process though, and it is one of the riskiest ways to make money in crypto. That is why most newer crypto participants need to follow the advice of somebody who knows what they are doing. Even some of the best crypto investors can fall victim to a bad staking opportunity. I’ve seen it happen many times.

There are literally thousands of “altcoins” out there, which are coins outside the main group of Bitcoin, Ethereum, Solana, etc. Would you advise investors to shy away from most altcoins? What mix of blue chips and altcoins should a crypto portfolio entail?

This is a good question that varies a bit for individual investors, but I can give you my answer for the average investor. A solid long-term crypto portfolio should consist mainly of blue-chip projects but should also have some exposure to more volatile and risky altcoins and speculative plays. Something similar to an 80/20 split is about the maximum exposure most investors should consider. Picking out the 20% of the portfolio to allocate to altcoins is the tough part.

There are many altcoins that investors shouldn’t spend any time on, but there are always diamonds in the rough, and newer projects tend to ascend into blue-chip territory in each market cycle. Solana is an example of a project that transcended into blue-chip status in the last cycle.

The altcoin portion of the portfolio tends to be more active, with more trading and also cycling in and out of projects, while the blue-chip portion of the portfolio should be much more consistent with fewer trades.

Can you name a few altcoins that are toxic investments to be avoided?

There are some popular coins that retail investors tend to invest in that they should really shy away from. Altcoins to be avoided include VeChain (VET), TRON (TRX), Shiba Inu (SHIB), and many others.

There are many cryptocurrency projects that might seem to have value but don’t actually have the fundamentals and staying power to make it in the long run. There are also plenty of decent cryptocurrency projects that will eventually get cannibalized by a market segment leader and eventually fail.

There is nothing inherently wrong with some of these projects, but they face stiff competition and are likely to eventually lose out. Those are the types of projects that I tend to keep out of my longer-term portfolio but may trade in the short term because they tend to be more volatile and offer good trading opportunities at times.

Editor’s Note: As the above article makes clear, crypto represents a lasting revolution in finance, investing, and consumer behavior. Consider this: Bitcoin, the leading “blue chip” cryptocurrency, gained a whopping 156% in price in 2023. This bullishness has extended throughout the crypto segment and the momentum is likely to continue throughout 2024.

Every portfolio should have some sort of exposure to crypto. But you need to be informed, to make the right choices. Start receiving our FREE e-letter, Crypto Investing Daily. Click here now!

John Persinos is the editorial director of Investing Daily.

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This article previously appeared on Investing Daily.