Bitcoin | Easier to access, but still just as risky

New speculative bitcoin bubble or emergence of new investment products?

The doyenne of cryptocurrencies is making a flamboyant return to financial news following the authorization by stock exchange authorities in the United States of new exchange-traded funds (ETFs) specializing in bitcoins.

Eagerly awaited on Wall Street, this authorization announced in mid-January gave a boost to the revival of bitcoin which had manifested itself at the end of 2023.

The result so far? In just a few weeks, the value attributed to bitcoin rebounded by almost 60% to surpass its previous high of US$68,000, which dates back to November 2021.

That’s four times higher than the low of around US$17,000 bitcoin hit just over a year ago, at the end of 2022.

Obviously, the authorization of bitcoin ETFs on the American Stock Exchange in mid-January has boosted the already very volatile nature of it.

But also, this new easier access to bitcoin – with simple transactions of ETFs managed by well-established financial firms – has generated a sudden influx of capital which amplifies the renewed value of bitcoin.

In two months since the beginning of January, nearly US$35 billion has flowed into the dozen new bitcoin ETFs authorized by the US SEC (Securities and Exchange Commission).

The Canadian experience

How far could this new market go? And, in turn, continue to fuel the new speculative momentum on the value attributed to bitcoin?

At the moment, ETF market analysts are having a hard time answering these questions.

At most, they are relying on the experience in Canada with bitcoin ETFs since their authorization in February 2021, three years before the SEC’s decision.

In his most recent monthly report on the ETF market, specialist analyst Daniel Straus of National Bank Financial recalls that bitcoin ETFs in Canada attracted nearly $700 million in their first month of operation.

This influx of capital continued in the following months to total just over 6 billion at the end of 2021.

At the same time, the value attributed to bitcoin had rebounded to its peak near US$68,000, taking with it the value of bitcoin ETF shares in Canada to their first record amounts.

But from the following year, in 2022, relates analyst Daniel Straus, the plummet in value attributed to bitcoin – from US$68,000 to US$17,000 in a few months – and the failure of large cryptocurrency transactional platforms translated into a sudden reversal of fortune for bitcoin ETFs in Canada.

They ended the year 2022 with shares devalued by 65% ​​on the stock market and a net outflow of capital of around 100 million.

Subsequently, investors in bitcoin ETF shares in Canada had to wait until October 2023 before benefiting from a renewed value attributed to bitcoin, amid rumors of an upcoming authorization of bitcoin ETFs on the stock market. American.

Caution and restraint

What lesson can be learned from these tumultuous first years for bitcoin ETFs in Canada, for the future of their new counterparts on the American stock market?

“All asset categories combined, the total ETF market in the United States is 20 times larger than that in Canada,” first recalls analyst Daniel Straus.

Still, “if the experience of the bitcoin ETF market in Canada can serve as a leading indicator of what could happen in the United States, there could be a period of significant capital inflows until that this initial market for bitcoin ETFs is saturated. From this point on, the demand [et la valeur] “Bitcoin and bitcoin ETF shares could rise and fall depending on investor sentiment towards this still highly speculative cryptocurrency sector.”

In other words, for individual investors, despite the rise of bitcoin ETFs whose shares are easily accessible on the stock market, caution and restraint remain key considerations.

Very risky

At the Montreal firm Claret, which manages 2.4 billion in assets for private fortunes and institutional investors, portfolio manager Vincent Fournier is even more categorical about investment products linked to bitcoin.

“When things go up in markets like bitcoin these days, investors tend to see it as an indicator of real value. However, despite its notoriety, bitcoin remains devoid of any tangible asset value, and therefore purely speculative,” indicates Vincent Fournier in discussion with The Press.

“In fact, I consider that the authorization of bitcoin ETFs does not help individual investors in the sense that it facilitates their access to an investment product that is far too risky for their average portfolio. Even in an ETF, investing in bitcoin remains as risky as playing at a casino. »

In the finance department of HEC Montréal, teacher Alain Elkaim is a financial markets specialist and coordinator of the trading room where future investment management graduates train.

Regarding bitcoin ETFs, Mr. Elkaim considers that their advantage for small investors is to “facilitate a position in bitcoin” with low management costs.

On the other hand, warns the finance teacher, this ease of taking a position should not encourage these investors to neglect “the golden rule of investing which consists of having a good understanding of what you are investing in”.

In the case of bitcoin and bitcoin ETFs, whose market depends on the creation or “mining” of this cryptocurrency through complex and opaque computer processes, “individual investors who want to go there must consider that the value of bitcoin is not based on any tangible asset and is very speculative and very risky,” underlines Alain Elkaim.