Asia’s first Smart Bitcoin ETF investment portfolio is launching today in response to the growing demand from investors to diversify their portfolios with exposure to the world’s premier cryptocurrency.
Aqumon, a Hong Kong-based digital wealth management platform, has introduced SmartGlobalC (SGC), which claims to be the first Smart Bitcoin portfolio in Asia that is tailored to investors who want diversified, risk-adjusted exposure to Bitcoin assets.
As traditional investors look to diversify their portfolios, the popularity of low correlated cryptocurrencies like Bitcoin has surged and is expected to be a driving force in markets for years to come. Over the past year, the world witnessed first-hand the limits of traditional portfolio investment diversification in the face of an economic downturn caused by the Covid-19 pandemic.
The high market correlation of traditional financial instruments such as stocks, bonds and gold meant that as the pandemic disrupted the global economy, the prices of these assets experienced the same downward shocks, effectively negating the safeguard of having a very diverse investment portfolio leveraging traditional products.
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What soon became obvious to institutional and retail investors was that Bitcoin’s correlation with traditional financial assets is relatively low. While BTC did initially shed 60% of its value in the immediate aftermath of the market crash in March 2020, the premier cryptocurrency almost immediately rebounded and began a bull run which saw its price climb by over 1,200% a year later — effectively climbing from under $5,000 in March 2020 to reach a new high of $64,000 in April 2021.
What Bitcoin highlighted for investors was that during economic downturns, holding, even as little as 2% to 4% of your investments in Bitcoin is enough to have a positive effect for portfolio diversification.
The most straightforward way to invest in Bitcoin is to purchase it directly and keep it in an encrypted wallet that only the buyer has access to. For some investors, however, this process raises flags surrounding cybersecurity and regulatory risks.
Aqumon’s latest offering with SGC integrates the firm’s flagship SmartGlobal algorithm with exposure to regulated Bitcoin Exchange Traded Funds (ETFs) in Canada, to provide a way to invest in securitized cryptocurrency assets for investors who are looking to diversify their portfolios with Bitcoin.
Over the past five years alone, Bitcoin’s price has increased by more than 15,000%. As one of the most popular and widely adopted cryptocurrencies across the world, BTC’s value has been breaking its own record highs with relative frequency since the start of 2021.
While some argue that Bitcoin ETFs are not necessary because investors can simply buy Bitcoin to gain exposure to its price action, the reality is that there is a more conservative and often less tech-savvy demographic of investors who are chomping at the bit to gain exposure to Bitcoin and the highly volatile cryptocurrency markets, but have difficulty taking the plunge alone and directly.
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As a result, there is a growing global demand for a safer and simpler way to invest in the rising cryptocurrency trend. This is leading to the pursuit and establishment of alternatives like Bitcoin ETFs, Bitcoin Investment Trusts, or investment in listed companies that invest in the cryptocurrency.
“It’s a revolutionary wave,” Kelvin Lei, CEO and co-founder of Aqumon told Forkast.News in an interview. “There has been a growing environment focused on how to apply Bitcoin investment into ETFs as they are the benchmark of how to change currencies into securitized vehicles that can be traded into the secondary market.”
While the goal of establishing a Bitcoin exchange-traded fund (ETF) has since 2013 been a hot topic in the cryptocurrency and investment space, with the rise in both the Bitcoin market size and the accompanying institutional interest, the desire for access to a Bitcoin ETF is reaching a fever pitch. In 2021, there have been some breakthroughs — Canada’s Purpose Bitcoin ETF (BTCC), launched in late February and has already amassed over US$1 billion in assets. This was soon followed by the Evolve Bitcoin ETF and the CI Galaxy Bitcoin ETF which are all now trading on the Toronto Stock Exchange (TSX).
For many investors, the process of investing in Bitcoin directly raises red flags surrounding cybersecurity and regulatory risks, but the “ETF format is a very powerful solution to these problems,” Lei said.
“The cryptocurrency world is moving really fast and what we want to do is build a bridge between the traditional financial world and the cryptocurrency world and there are only a few people doing that — for example, the Bitcoin ETFs in Canada.” Lei said, “I think people are starting to have this concept of needing to add some cryptocurrencies into their portfolios. But they are hesitant to take all the risk of the cryptocurrency world.”
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Aqumon’s SGC leverages big data technology and advanced algorithms to select high-quality stocks, bonds, and alternative assets for its client’s portfolio. “We then added Bitcoin ETFs in a manner that optimizes your Bitcoin returns, while controlling risk and volatility. Our extensive backtesting results of SmartGlobalC showed an annualized return that’s as high as 18.95%,” Lei said.
Regulating the Portfolio
Aqumon is based in Hong Kong where Bitcoin is only defined as a commodity by the financial watchdog, the Securities and Futures Commission (SFC), and as such there are no ETFs live in Hong Kong. The SGC portfolio instead includes a Canadian ETF that tracks the price of Bitcoin and is traded on an overseas stock exchange.
Lei is an external member of Hong Kong Securities and Futures Commission’s (SFC) Fintech Advisory Group, and was able to work closely with the regulators to ensure the product was viable and compliant on the Asian Markets.
According to Lei, the regulatory environment in Hong Kong means that currently products that provide exposure to cryptocurrencies like Bitcoin and Ethereum can only be sold to accredited investors — similar to Huobi Asset Management’s recently launched crypto tracker funds.
“The ETF is recognized by the Canadian regulators. This means that products have been through all these regulation questions and have set up security, custody and also compliant legal structures,” Lei said. “When we spoke to the SFC and they didn’t say yes or no, but they told us that we need to carefully assess the risk appetite of our clients and to disclose the nature of the product in a very clear way, so our portfolio SGC is only offered to aggressive type of risk preference clients.”
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Aqumon was able to satisfy the SFC’s requests as only 5% of the SGC portfolio is made up of the Bitcoin ETF while more than “95% of the portfolio is consisted by the traditional large stocks and bonds,” Lei said. “So the portfolio volatility is really low and the risk is very well controlled.”
In Asia, Bitcoin continues to find new mainstream demand. In late February, the BCMG Genesis Bitcoin Fund-I launched for accredited Asian investors. It claims to be one of the first insured Bitcoin funds in Southeast Asia and aims to meet the growing institutional demand in the region.
Similarly, in late April, Huobi Asset Management launched four new virtual asset-related funds, creating new ways for accredited and institutional investors to gain exposure to Bitcoin and Ether as well as the crypto mining sector.
However, Aqumon’s SGC allows an investment threshold as low as US$1,000 allowing smaller yet aggressive retail investors exposure to Bitcoin to lift up their portfolios when other segments of the market are down.