Crypto for Advisors: 2024 – Bitcoin’s Year?

In today’s issue, Kevin Tam takes us through bitcoin’s progress in 2024, along with a look at the recent SEC 13F Filings.

Then, Federico Brokate from 21Shares answers questions about custody and regulations in Ask an Expert.

– Sarah Morton

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2024 has been a year of significant progress for the crypto industry, as bitcoin adoption has reached new heights and regulatory clarity has emerged. From institutional investment to mainstream recognition, the year has seen a major shift in how the world views and interacts with digital assets. In this wrap-up, we will take a closer look at the key events and trends that have shaped the crypto space.

In January 2024, the U.S. Securities and Exchange Commission approved 11 spot bitcoin ETFs. This marked a major turning point for the cryptocurrency industry, demonstrating the SEC’s willingness to regulate and approve bitcoin ETPs. Building on the bitcoin ETF approval, the SEC approved spot ether ETFs in July. The approval of spot bitcoin and ether ETFs represents a pivotal development in the financial markets, offering a more direct and transparent way for institutional investors to gain exposure to a high-grade asset class.

Notable events this year:

Bank of New York Mellon is set to enter the crypto space as the SEC approves custody services for digital assets, a move that could bring further legitimacy to the industry.

BlackRock’s iShares Bitcoin Trust just got a major boost with the SEC approval of spot bitcoin ETF options. It helps to pave the way for wider investment access with increased liquidity, bringing sophisticated hedging strategies and developing bitcoin covered calls from other ETF issuers.

Senator Cynthia Lummis proposed a $67 billion strategic bitcoin reserve to bolster the U.S. dollar. The plan aims to diversify Uncle Sam into bitcoin, securing the dollar’s global reserve currency status. The proposal includes a 1-million-unit BTC purchase program, mirroring the size of U.S. gold reserves. The BITCOIN Act would establish a strategic bitcoin reserve to serve as an additional store of value to bolster America’s balance sheet and ensure the transparent management of bitcoin holdings of the federal government.

We have seen the House pass the Financial Innovation and Technology for the 21st Century Act (“FIT21”) for better consumer protection and regulatory certainty necessary to allow digital asset innovation to flourish in the U.S. This regulation helps to define the roles of the Commodity Futures Trading Commission (CFTC) and the SEC for a clear crypto framework.

According to SEC 13F filings, the State of Michigan Retirement System is the first state pension fund to buy an ether ETF. It owns 460,000 shares, valued at $11 million, of Grayscale ETH Trust., in addition to the $6.9 million holding of Ark 21Shares bitcoin ETF from this summer.

A 13F filing indicates that Canada’s five largest banks, RBC, TD Bank, Scotiabank, BMO and CIBC, continue to add allocations of bitcoin and ether ETFs to their institutional holdings. The total exposure from the Canadian banks is over $38 million, with Bank of Montreal holding $16.7 million.

January to March 2025 filings will be interesting. They will reveal which new banks and institutions were buying during fall 2024, as the calculus for bitcoin buying changed.

MicroStrategy’s recent Q3 2024 financial results announced a Bitcoin Treasury Company strategy. Over the next three years, the company aims to raise $42 billion to invest in bitcoin, with half raised through equities and half through fixed-income securities. By the end of October, MicroStrategy’s bitcoin holdings amounted to 252,220, valued at approximately $18 billion.

Much like the Bitcoin blockchain layer provides a secure and stable foundation for growth backed by 700 EH/s of energy, the progress made in 2024 has established a solid foundation for the crypto industry’s future development.

Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Kevin Tam. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision.

– Kevin Tam

Q. What is the outlook for the digital asset industry and crypto performance? Is this still a good price entry for investors?

The future of the digital asset industry looks bright. Reasons for optimism include:

· Interest rate cuts create a favorable macro backdrop for bitcoin—the asset benefits, especially during periods of increased money supply or economic stimulus..

· Potential policies such as tariffs might lead to higher inflation. Bitcoin is increasingly viewed as a store of value and a hedge against inflation and performs well in these environments.

Q. What regulatory developments could boost advisors’ willingness to participate in the crypto market?

A major regulatory development would be repealing SAB 121, which requires custodians to record crypto holdings as both assets and liabilities at fair market value, necessitating a 1:1 reserve in dollars. This policy inflates balance sheets and dissuades institutions from offering crypto custody services.

The FIT21 Act also promises to provide a clearer regulatory framework for digital assets by defining the roles of the SEC and CFTC and categorizing assets based on their decentralization and functionality. This positions crypto as a more structured asset class and boosts confidence for advisors.

Additionally, Trump’s strong support for DeFi could lend legitimacy to the sector and help position DeFi as a viable component of client portfolios.

Altogether, these initiatives could position the U.S. as a leader in digital assets, creating a robust regulatory foundation that encourages advisors to view crypto as a viable, regulated asset class.

Q. How are crypto assets safeguarded, and how can they alleviate investor concerns? What makes an issuer diversified with respect to custody?

Crypto custodians use a combination of security measures to protect against unauthorized access and cyber threats. A primary method that has become a standard by crypto ETF issuers is the use of cold storage, where digital assets are kept offline in secure hardware wallets. These wallets often require multiple signatures to authorize transactions, adding an extra layer of security and reducing the risk of hacks.

– Federico Brokate, VP and head of U.S. business at 21Shares