Learn About Crypto Asset Allocation and Two Invesco Crypto-Focused ETFs
Ric Edelman: I'm Ric Edelman. I'm very happy to bring onto the program Rene Reyna. He is one of the key investment strategists at Invesco and a certified financial planner. Rene, thanks for joining me on the program.
Rene Reyna: Ric, happy to be here.
Ric: So one of the key themes that is growing in popularity is the theme of digital assets. You talk to investors and financial advisors all the time. What are you hearing?
Rene: You speak to the popularity. So the last year was a pretty big year. We saw the cryptocurrency market cap space reach almost 3 trillion. You saw Bitcoin almost reach 68,000 in November. We saw a lot of crypto-related ETF filings in the marketplace. And I think what we're seeing is that advisors are having conversations with us because their clients are asking and inquiring about it. And so a lot of investors really are trying to wrap their heads around what the cryptocurrency space is, how to think about Bitcoin and what investment options exist.
Ric: And one of the challenges, of course, you mentioned back in November, Bitcoin hit over $60,000 in price, dropped dramatically over the next several months. That's not the first time that's occurred. Bitcoin digital assets overall have a reputation, deservedly so, of massive volatility. Five times in Bitcoin's life, it has fallen 50% or more, including in the past six months, most recently this past November. What should investors make of all that? Is that a reason to stay away from this, or do you invest despite that?
Rene: You bring up a lot of good points. And in fact, since the inception of Bitcoin, we've really seen 15 bear markets take place. And so what I think the first part is just recognizing that. And I think for investors who a lot are sort of rebalancing on a quarterly basis, for example, it gives you the opportunity to sort of buy a lower price that can enhance and diversify a portfolio.
Bitcoin As An Inflation Hedge?
Ric: One of the biggest problems with our economy right now, obviously, is inflation. It's at a 40-year high. Gas prices are at their highest levels ever. Rents are rising across the country, over 25% on average nationwide. One of the arguments for Bitcoin over the last decade has been that it serves as a hedge against inflation. Do you buy that argument?
Rene: Over the long term it appears that way. And again, these are where some of these near term trends that we're seeing, you know, if you look at sort of CPI prints over the last few months as those increased, we've seen sort of Bitcoin price sort of fall. So in these smaller windows, the jury's still out, if you will. It's still probably too early to tell. But I will say that having a fixed amount of Bitcoin, you know, is an interesting component. I think just because of that fact alone.
Ric: You know, I'm kind of fascinated by the fact that we're even having this conversation, you and I, because you're one of the top investment strategists for Invesco. Invesco is one of the oldest, largest and most successful ETF and fund managers in the industry. The Invesco QQQ, for example, is what, 20 years old and the fifth largest ETF in the entire industry? I don't know that you and I would be having this conversation five years ago about crypto. So talk about the fact that major institutional investors such as Invesco are now paying attention to the crypto market.
Rene Reyna: Yeah. So I think there's recognition, investor demand on owning Bitcoin individually. So I think investors are looking for more familiar ways, if you will, to get exposure. And so it's no secret the ETF is a popular investment vehicle - you have a lot of elements, whether it's low cost, transparency, consistency in terms of the methodology in a lot of cases. And so ultimately, you know, we see this need or sort of desire to own it in a more familiar product. And I think from an advisors perspective as well, if we just think of sort of the workflow, many advisors do own ETFs for their clients' portfolios. So I think it's natural to see a lot of asset managers like Invesco look to try and solve for that demand and try to bring something within sort of the regulatory framework.
The Three Ways You Can Own Bitcoin In an ETF Today
You know, there's effectively three ways you can look at owning Bitcoin in an ETF. So one, would be sort of this broader sort of ecosystem approach. I think two, would be derivatives. So if we look at Bitcoin futures and we saw the first launch, a very successful one that took place back in last October. And then sort of the Holy Grail, which we're not quite there yet, would be spot Bitcoin. And so as asset managers, I think we're all sort of keeping an eye on that, Invesco included. But I think that's really what we've seen is that through investor demand, you're having the ability to provide something in the marketplace that is a little more familiar. And then you sort of have that regulatory oversight as you think about how ETFs are regulated in the marketplace.
Ric: And when you see investors interested in this and adding crypto to their portfolios or investment advisors, what is the typical allocation that you're seeing people do or the allocation that Invesco would suggest? What percentage of the portfolio should go into crypto?
Rene: Yeah. So we generally see single low digit percent allocations. And so whether you have Bitcoin exposure via ETPs or Trust or you own Bitcoin miners, which are highly correlated to the underlying Bitcoin, it can be volatile. And so, you know, we generally see investors and we recommend generally single low digit percentage exposure and then having an approach where you rebalance over time to help capture profits when you see a run up in Bitcoin to the broader crypto markets, but then also opportunity to buy low when you see some of these sell offs as well.
Ric: And because of the institutional engagement now Invesco acknowledging that there's a lot of interest among individual investors and increasingly among investment advisors. Invesco recently launched two ETFs in the crypto space that focus on this digital asset theme. Talk about the ETFs that Invesco makes available.
Invesco’s Two New Crypto-Focused ETFs
Rene: Yeah, so we back in October, we launched two new ETFs, so one was a more narrowly focused crypto ETF. This was the Invesco Alerian Galaxy Crypto Economy ETF. The ticker is SATO. Then the second option was a more diversified approach - the Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF. The ticker is BLKC. And so that's four crypto segments in both portfolios: crypto miners, these are publicly traded companies who are mining primarily for Bitcoin; semiconductors, so think of all the processing power that goes into mining Bitcoin, the exchanges to facilitate the buy and sell and trading, so like a Coinbase, for example, would fit into that bucket. We have a segment of crypto buyers. These are publicly traded corporations who are diversifying by owning Bitcoin. And then there is a segment of ETPs or trusts. So currently in the portfolio we own GBTC. And so 85% of the portfolio is going to be in these crypto equities, 15% in trusts or ETPs. So that is our ticker. SATO That's the more crypto narrowly focused portfolio. It's going to have a bias towards pure plays. So 80% of the portfolio is going to give that pure play exposure. It's going to be rebalanced monthly. I think I touched on that earlier and offer the marketplace for 60 basis points.
Our more diversified approach, ticker BLKC, so the blockchain users and decentralized commerce ETF, takes those four segments and in fact those for exact same segments and holdings - so 100% overlap there, and then we add 20 blockchain users. And so these are publicly traded companies that are using the blockchain technology for non-crypto purposes. So for example, food, traceability, Walmart, MasterCard, I know is increasing their or enhancing their sort of transaction capabilities. And so there's a growing segment of publicly traded companies using the blockchain technology, and that portfolio is going to add 20 names from that space and then just be equally weighted versus having that pure play bias. And again, both are offered at 60 basis points and just a great way to get exposure to this theme and exposure to Bitcoin via some of these crypto related equities in the portfolio.
Ric: If people wanted to learn more about the offerings that Invesco has, how would they do that?
Rene Reyna: Yes. A great way Invesco.com. You go to the ETF segment; we have a digital asset loading page. So you'll have some great resources, education, as well as information on the two portfolios that we have currently available in the market.
Ric Edelman: Rene and I actually spoke for about 10 minutes. If you would like to watch that entire video cast or listen to the entire podcast, just go to TheTruthAYF.com.