Presented by Syntax Advisers.
Margareta Hricova Welcome to ETF TV – your insight into the world of exchange traded funds, issuers and investment. I am Margareta Hricova, and joining me today is Deborah Fuhr and Julian Klymochko, founder and CEO of Accelerate Financial Technologies.
Welcome to the show.
Julian Klymochko Thanks for having me. I’m excited to be here.
Deborah Fuhr Thank you.
Margareta Hricova Julian, can you tell us about the relationship between Bitcoin and ESG?
Julian Klymochko On the governance side, Bitcoin’s distributed ledger technology means that there’s no central governance or something that kind of rules the bitcoin block chain, which is great. From a governance perspective we believe that Bitcoin ranks very highly, and from a social perspective the fact that Bitcoin represents truly sovereign money that’s accessible to all and can’t be printed by governments, we think it’s one of the best ranking assets that’s investable from a social perspective.
However, from an environmental perspective, Bitcoin does rank poorly, and that’s because its block chain is very energy intensive, and with that energy intensity comes a significant amount of carbon emissions that are concerning to investors. So from an ESG perspective, Bitcoin is running strongly on the S and the G, but poorly on the environmental side.
Deborah Fuhr Last week you listed the Accelerate Carbon-Negative Bitcoin ETF (ABTC/ABTC.U) on the Toronto Stock Exchange. The ticker is ABTC, which is designed to give exposure to Bitcoin, but also a decarbonization initiative. Can you tell us about that?
Julian Klymochko One of the reasons that we launched the Accelerate Carbon-Negative Bitcoin ETF was to counteract the negative environmental effects of Bitcoin. We’re highly cognizant of greenwashing, given that things such as carbon credits don’t necessarily have a net-positive benefit on the environment. So we did something truly novel and innovative, which is our global tree-planting campaign. We are not only negating the carbon emissions from the Bitcoin transactions ABTC, but we are more than 60-fold sequestering carbon emitted by the Bitcoin transactions. We’re doing that by planting forests specifically focused on planting mangrove trees in Madagascar, as forests act as Nature’s natural carbon sink. They’re esthetically pleasing. And if someone invests 1000 dollars into a ABTC, we estimate that 3.45 trees will be planted, sequestering a net one ton of carbon dioxide emissions each year. So it’s great for the environment, it’s super beneficial, and we’re excited to have an eco-friendly way of bringing Bitcoin accessibility to investors in a climate positive manner.
Margareta Hricova Investors typically have three major considerations when allocating capital. ‘What is the expected return? What is the estimated risk and how does it fit within my portfolio?’ What is the investment case for Bitcoin?
Julian Klymochko From an expected return perspective, Bitcoin has been perhaps the best performing asset on the planet over the past 10 years, over the past five years compounded over 100% annually. It’s doing exceptionally well year-to-date, so both in the short-term and long-term. From my personal perspective, I have a long-term target on Bitcoin of 500.000, so if it gets there in the next 10 years, that represents a forecast compound, annual growth rate of north of 25% annually. So we have a positive outlook for future price performance.
Then on a risk and volatility perspective, Bitcoin is highly volatile and highly risky. So a warning to investors that you can expect drops north of 50%, 80%, 90%. These have happened historically and quite often. So note the volatility and the risk and the way that you deal with risk volatility is not by saying, no, I will not invest. It’s by position sizing. So when advising people on their portfolios that do want to diversify with Bitcoin, I always say consider it a 1-2% portfolio position. That way, if it does drop 90% on its way upwards, then you won’t panic sell and you won’t be feeling it too harshly in your portfolio, but on the other end of it, if it does go up 10 times from here, you have that 1-2% position, so you do get to benefit from that price appreciation.
Then the third aspect is how does this fit within a portfolio? Well, the main reason I like Bitcoin in my portfolio and for investors portfolios, is its historical lack of correlation to traditional asset classes such as stocks and bonds, and this means that Bitcoin has moved differently. And that’s the true essence of portfolio diversification and asset allocation. It’s if you want to diversify with uncorrelated assets, i.e., they perform differently than the existing assets within the portfolio, so I think that Bitcoin has those diversification properties.
Deborah Fuhr That’s great. So normally we know that institutions and discretionary fund managers use ETFs in addition to retail. You’ve talked about retail, but are we likely to see the discretionary fund managers and institutions start using it?
Julian Klymochko That’s a great point. Bitcoin really has been carried by retail over the past 10 years, but we are seeing some institutions start to dabble. Bitcoin recently crossed the one trillion dollar market capitalization earlier this year. And as it goes higher and higher, institutions can no longer ignore it. You do hear rumblings of Yale endowment, Harvard endowment starting to dabble in that asset class, so we do believe we’re early on in the institutional adoption of Bitcoin allocation within their portfolios, and we do expect that effect to power the next leg of this bull market.
Margareta Hricova And what are your thoughts on the state of the ETF industry today and your outlook for 2022?
Julian Klymochko There’s a ton of great innovations coming through the ETF structure, whether it be traditional mutual funds going away because they aren’t very investor friendly, they’re high cost and going to a low cost, liquid, accessible ETFs. We are seeing that on the alternative side as well, when you have high cost, hedge fund limited partnerships, when you can just offer that same strategy in a low cost, accessible,liquid, alternative ETF. So we are seeing migration from other structures, just because investors prefer ETFs. They’re more investor friendly, and in addition to that we are seeing some interesting new asset classes being offered within ETFs such as cryptocurrency such as Bitcoin. That’s a new asset class to be offered by an ETF, and I believe that will continue, so just more innovation and more growth.
Deborah Fuhr That’s great. Thank you for that update.
Julian Klymochko Thank you for having me.
Margareta Hricova Debbie, can we talk about some of the other news in the industry?
Deborah Fuhr Last week there were 46 new listings from 14 issuers and there are 31 new cross listings. We’re starting to see the preliminary data for end of August, which is pretty exciting. There are a number of exchanges, as you know, that don’t provide data until 8-11 days after month-end, so we don’t have final data. But it looks like global assets have reached a new record of 9.6 trillion dollars. The net inflows for the month look like they’re about 106, which means that at the end of the 8th month of the year, we’re at 843 billion of net inflows, so records on most of these levels.
If we look at Europe, we can see that the ETF industry has reached a record of 154 trillion dollars. We also see that the net inflows have reached 139 billion, which is more than the record at this point in any prior year, which was 78 billion. And we’re basically 19 billion more than all of last year. And we’re also 14 billion more than the prior record full year flows. The other thing I would say is we’ve seen 17 months of consecutive net inflows, which is pretty good considering what we’ve been through in the past two years.
And we also want to mention that we hope that all of you have registered to attend our Europe & MEA event next week. It’s a virtual event so you can go to our website, ETFGI.com, if you’d like to register.
Hope to see you there.
Margareta Hricova Thanks so much, Debbie.
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