Crypto’s rally in 2024 so far has been fueled in part by the debut of spot bitcoin ETFs earlier this year. Is that a good thing for bitcoin or is it just pulling in a lot of speculators and driving more price volatility? Where does it go from here? Scott Melker, the host of the Wolf of All Streets podcast, has been a crypto bull for a long time and is a strong believer in bitcoin’s potential. He joins the ETF Think Tank to discuss the landscape and how it’s changed now that retail investors have easy access to the market.
The crypto market has long been a mix of people believing in the business case for bitcoin & ethereum and those in it just to speculate on the price. Melker believes this time may be different though based on where we are in the cycle and where retail is at. Before, we were in the midst of this euphoria/paranoia back-and-forth and we really don’t have that now. He notes that most people know what bitcoin is now, so you don’t have as many barbers and Uber drivers asking about it. He thinks the percentage of investors & traders who would be described as retail is still very small, but the gates have been opened to people who didn’t have access before.
Melker believes that one of the best strategies for investing in crypto is one of the most traditional – dollar cost averaging. He admits that he got crushed during the tech bubble and the financial crisis, but the one thing he did figure out was dollar cost averaging. In bitcoin, bear markets may only last a year or so. In the grand scheme of things, waiting a year to generate gains is nothing. He views investing as a decade-plus process, while trading is days, months or a few years. Melker says he participates heavily in the rest of the market, but he has no interest in selling his bitcoin position. Some people treat this as a religious fervor, but he still views it as an asset.
One interesting option for investing in crypto is the bitcoin miners. The miners are making more money on transaction fees compared to what they’re actually making mining bitcoin, so that will likely be their next business iteration. The miners with low electricity costs, solid infrastructure and cash on hand will likely handle this better. Miners are positioned better today to survive and there are a lot more ways for them to make money down the road. We’ll see that continue.
As far as how the emergence of retail investors is impacting bitcoin, Melker says that buy orders have mostly been small individually but massive in scale. The question could be whether flows will continue when bitcoin experiences a steep decline. Previously, the casino idiots who were leveraged and got wiped out had no plan and no stop loss. The dips that have occurred recently came from crypto gamblers, not retail. One thing that is new to the space is that we do see more trading action now around the market open due to the presence of bitcoin ETFs.
From an advisor perspective, Melker thinks that we may get to the point where advisors start getting fired for not allocating to bitcoin. We didn’t have the products before, but we do now and they’re rapidly becoming part of the mainstream discussion. There would have been reputational risk by suggesting bitcoin before, but that’s starting to go away. Now, advisors at least need to have an answer to the bitcoin question. More people consider it a legitimate asset, so RIAs who ignore bitcoin as an asset class may get left behind. RIAs are already starting to add 1% bitcoin to even their conservative portfolios. What happens when BlackRock says you should add 1% bitcoin to your portfolio? His recommendation is to consider adding 1% today and slowly adding more if you wish to get more aggressive.
Other key takeaways:
- You learn more from losses than gains. Easy money is just being held for the next person.
- Is the argument for ethereum the same as bitcoin? Melker thinks there’s a unique opportunity around the ethereum ETF. He doesn’t, however, perceive that being a part of the “get it in everyone’s portfolio” any time soon.
- Michael Saylor’s level of conviction on his crypto bet was incredible. It was risky at the time, and he looked like a zealot, but it was very prescient. He’s not taking any operational risk like he would be by buying a company.
- I own 100 coins, but bitcoin is the one I pay attention to. As the bull market progresses, I sell these altcoins along the way, but hang on to the bitcoin. Melker says that he is “uncomfortably bullish on ethereum”. He thinks that ethereum sucks to use, but believes they’ll solve a lot of that eventually. As a trade, it tends to follow the price action in bitcoin. There are some positive developments here and he thinks ethereum could be the place to be.
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