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₿ The largest Bitcoin fund is broken

April 22, 2021 Sign up
TOGETHER WITH Finny

Happy Thursday, you can take the day off tomorrow. Just blame it on us! Here are our topics to close out the week: 

  • The largest Bitcoin fund is broken
  • Is ESG investing all about how it makes us feel?
  • How to compete with all-cash homebuyers?

CRYPTO INVESTING

The largest Bitcoin fund is broken

Bitcoin’s adoption growth over the last six to twelve months has increased at a rapid rate, but it’s an understatement to assess this as an entirely different situation from the 2017 crypto bubble we experienced. This time last year, the price of one Bitcoin was sitting at about $7,000 per coin compared to its present $61,000 price tag. That’s about a 9x jump, and we’ve come a long way.

With this growth has come a sweeping acceptance of Bitcoin that’s made its way to the institutional level. Although many are still wary, digital asset managers like Grayscale and others (Osprey, WisdomTree, VanEck, etc.) continue to create their own funds, allowing investors indirect ownership and exposure to Bitcoin and other crypto assets.

The appeal of this form of exposure to Bitcoin is found in the suggested peace of mind that comes along with it, with Grayscale themselves declaring that: “The Products were developed to offer investors ease of mind and an investment product that is familiar to both financial advisors and investors.”

This sounds great in theory, but there’s been some rough sailing upon their introduction.

The institutionalization of Bitcoin is experiencing some growing pains

It hasn’t exactly been smooth sailing for these funds. Grayscale’s Bitcoin Trust (GBTC) has been trading below the price of Bitcoin since February 22nd, and it’s presently trading at about an 11% discount from NAV as of April 15th.

Lack of demand. This could be viewed as an indication of demand drying up after those on the metaphorical waiting list got in. Reports show that about 80% of the capital flowing into the fund’s holdings were from institutions and businesses seeking to hedge against inflation or interest on their loans, meaning that the use case for GBTC has been very specific.

Caveats and restrictions. On top of the relatively underwhelming performance in the short term, funds like these also come with some asterisks that can be a turn-off for many investors. Case in point, Grayscale’s ETF requires a 6-month lock-up period before being able to withdraw. It also asks for a 2% management fee and suffers from price discrepancies in regards to properly tracking Bitcoin. 

With this performance so far, it wouldn’t be surprising to see a mass exodus of the institutions invested at the end of their 6-month lock-up period. This could cause further issues, putting a further stain on the reputation of the Bitcoin funds market.

Will this and other alternatives suffer if Grayscale’s fund continues to disappoint?

That remains to be seen. So far, the SEC has rejected every US Bitcoin ETF application that's crossed its desk citing the potential for market manipulation and a host of other concerns. But with an incoming Chair who is friendly to crypto and blockchain, the SEC may finally be ready to approve them. When that day comes, money will flow fast into these ETFs, continuing the adoption of Bitcoin.  

So although we seem to be experiencing what we’d term growing pains for now, the future remains relatively bright for the public acceptance of Bitcoin.

INVESTING

Is ESG investing all about how it makes us feel?

If you’re wondering what the heck ESG investing is, you’re not alone. Essentially, ESG investing is just a conscientious way of investing in businesses that align with your values. Investors want to measure the societal impact of the business they’re investing in, and ensure it’s sustainable. 

ESG stands for environmental, social, and corporate governance, and it’s probably been around longer than you think. ESG investing began back in the 1960s when investors began excluding entire market segments from their portfolios such as tobacco and defense contractors.

Feelings and finances

Some speculative perspectives will argue that ESG investing is just about how it makes investors feel about themselves, essentially accusing them of virtue signaling and suggesting there’s no basis in financials here. While it may be true that it does make us feel good to invest in businesses that do good, there can certainly be a valid investment thesis behind that too.

For example, broad research has shown that investing in green energy will generally return anywhere from 2 to 8x more than investing in fossil fuels. In France and Germany, returns from green energy investing were about 178.2% over five years, compared to just about 20% for fossil fuels. In the U.K. a 75% to 8% ratio was observed, while in the US it was 200% to 97%, with renewables returning more than double that of fossil fuel investments.

Finding your ESG niche, and investments within it

Investing in companies that fit into your criteria for ESG investing should be coupled with your standards for what you expect in terms of ROI too. The good news is, these companies qualify for this status for a reason, and it’s because they’re not naive at all for realizing sustainability is, in most cases, where the future lies. 

We’re used to publicly traded companies having somewhat of a machiavellian approach to business where the end goal is the profit and its shareholders, but there are numerous other businesses that commit themselves to the social good and boast magnanimous leadership within their company boards while also maintaining a profitable investment vehicle for everyday people.

Some examples of recommended companies that fall into different sectors of ESG investing: 

Consider opening your investment strategy to include some ESG investing

Even if individual stocks aren’t your forte, there are seemingly unending lists of ESG tailored ETFs on the market to choose from, some of which have outperformed the market over the last 5-10 years. We’re not as early to some of these investments as we could’ve been 5 years ago, but we’re still much earlier now than we will be 20 years in the future.

💡 Check out top ESG ETFs by net assets and a comparison among them: ESGV vs USSG vs SUSL 

🌱 Learn more about what ESG investing means from this bite-sized quiz:

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REAL ESTATE

How to compete with all cash home buyers

Unfortunately for most of us everyday home shoppers, we can’t all grow up to become Grant Cardone or Dave Ramsey. Paying for a home in all cash is rarely a feasible venture, at least at any relatively young age, and could often even be an irresponsible use of liquidity considering the return you could get elsewhere. (Sorry Dave.) 

In competitive housing markets though, there are sometimes a surprising amount of offers that come in by way of cash on the barrelhead, and this can create a bit of an issue for your classic buyer seeking financing who finds themselves in a bidding war with the local 1031 exchange master. 

As you may have learned from Tiktok and Youtube’s self-proclaimed real estate gurus, there are plenty of “creative” ways to buy a home.

Here are a few ways you can compete without the cash.

  • Cover miscellaneous fees. Cash offers often come with caveats like, “Well, I’m giving you straight-up cash, so you cover all the fees and closing costs.” You, as a non-cash buyer, don’t have this luxury, but that’s okay. Offering to pay for inspections, closing costs, and other fees can be a winning bid to a seller who has plenty of patience and doesn’t mind that you’ll be needing a loan. Ultimately, they’ll be walking away with more money, and you with a new home.
  • Offer slightly higher. As mentioned above, cash buyers often expect special treatment, and rightfully so sometimes. Cash offers typically come in lower though, leading the seller to compromise on what they actually want for the home for the sake of convenience. You, on the other hand, can offer a full asking price (or a few percent above your competing offer) and give the listing agents what they’re asking.
  • Go local & be prepared. Working with a local lending agency and getting pre-approved for your loan before even consulting with the seller goes a long way in showing your preparedness, and gets some of the bureaucratic paperwork and wait time out of the way for the seller. If you’re pre-approved and ready to go, you’re a formidable opponent to the all-cash players.

📚 If you need a few more home buying power tips, take this bite-sized lesson:

✨ TRENDING ON FINNY AND BEYOND

  • Do your ESG fund and stock research using Finny's bias-free research tools (Finnyvest)
  • You can now buy bitcoin and other cryptocurrencies on Venmo—here’s what you need to know (CNBC)
  • Earn interest on your crypto.  Get up to 8.6% APY with a BlockFi interest account (BlockFi)*
  • Coinbase fuels bitcoin ETF race led by WisdomTree, VanEck (Fox Business)
  • Did COVID-19 did change migration patterns in the US? Some say no  (NY Times)
  • Finny lesson of the day. Refresh on mortgage basics in 5 quick mins:

Finny is a personal finance education start-up offering free, game-based personalized financial education, a supportive discussion forum, and simple stock and fund tools (aka Finnyvest).  Our mission is to make learning about all things money fun and easy! 

The Gist is Finny's newsletter to our community members who are looking to make and save more money, protect their finances and be their own boss!  It's sent twice a week (Tues/Thurs). The editorial team: Austin Payne and Chihee Kim.

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