Ethereum
Should You Invest in Spot Ether ETFs? Here’s What the Experts Say
Key points to remember
- Individual investors can now buy and trade cash ETFs and other securities in their brokerage account.
- Ether and Bitcoin are, on average, six and eight times more volatile than a 60/40 portfolio, according to a Morningstar analysis.
- Allocating 5% or more of your portfolio to cryptocurrencies can make it significantly more volatile.
You can now invest in Ether (ETH), the native token of the Ethereum blockchain, by putting money into one of nine ether points exchange traded funds which began trading on Tuesday. But should you do it?
These ETFs have helped to gain a share of the second largest cryptocurrency by market cap more easily through a brokerage account, just as you would other stocks and ETFs.
“Most investors are accustomed to holding securities in their brokerage accounts and are not accustomed to holding digital assets in digital wallets. By owning a Bitcoin or Ethereum ETF, they can invest in these assets in a more familiar way,” said Douglas Boneparth, CFP and founder of Bone Fide Wealth.
Fidelity and Charles Schwab are among the brokers that offer these products, and investors should check with their brokers to see if they have this option.
Although it attracted more than $100 million in revenue On their first day, Ether ETFs have yet to really attract investor interest. This is in stark contrast to the massive inflows seen by spot Bitcoin ETFs which began trading in January.
When Investing in Crypto ETFs, Be Prepared for Volatility
If you’re considering investing in cryptocurrency, prepare for a roller coaster ride, experts say.
“These are funds that don’t have a significant track record. The volatility is significant and investors really need to get used to what these types of funds do in the market,” said Megan Gorman, managing partner at Chequers Financial Management.
Although cryptocurrencies such as bitcoin (Bitcoin) and ether have the potential to offer higher returns than a conventional 60/40 portfolio of stocks and fixed income securities, this also carries much greater risks.
“These are cryptocurrencies that have generated incredible returns over their respective lifetimes, and that also comes with a lot of volatility,” says Stephen Margaria, a research analyst at Morningstar. “Over the five-year period we studied, Ether and Bitcoin were, on average, eight times more expensive than other cryptocurrencies.” [and] six times more volatile.
Even allocating a small percentage of your portfolio to cryptocurrencies can significantly increase volatility. An analysis by Morningstar found that if an investor allocated just 5% or more of their portfolio to ether, bitcoin, or a combination of the two, it would increase volatility by more than 10% compared to a 60/40 portfolio. Investing only in ether could make your portfolio more volatile.
“If investors want to diversify their portfolio further into cryptocurrencies, at 1% or 2%, you don’t see much change in the risk profile of the portfolio, but it’s really at 5% or above that investors need to be aware of how that plays out. [risk] “There are many changes,” explains Margaria.