Crypto-Curious? A Guide to Digital Asset Exposure

Gone are the days when Bitcoin was only for basement-dwelling tech geeks. Though the cryptocurrency frontier was pioneered by such computer science enthusiasts, the new wave of digital asset investors represent a much broader cohort. Massive institutions and working-class professionals alike are demonstrating unprecedented demand for digital assets. For many, the question is how, not if, to invest in Bitcoin and other cryptocurrencies. Accordingly, new investment products are quickly emerging. From self-custodied wallets to actively-managed portfolios like those at Sarson Funds, we will explore the spectrum of products offering digital asset exposure to help you determine which are best for your investing needs.

Brokerage-Custodied Direct Exposure

Commission-free brokers like Robinhood and Etoro have surged in popularity in recent years due to their accessibility and ease of use. Popular amongst millennials, they offer a low barrier to entry for new crypto investors to gain direct exposure to select digital assets like Bitcoin. However, Robinhood doesn’t support crypto withdraws, while Etoro’s crypto wallets only support certain tokens. Customers purchasing crypto assets without withdrawal capabilities give up the ability to move their cryptocurrency freely. This is a major disadvantage long-term. Customers unable to withdraw their crypto give up yield earning, collateral staking, and value transferring opportunities while still relying on a third party to securely store their digital assets. For these reasons, more sophisticated crypto investors often employ methods such as self-custody, trusts, and actively managed crypto funds to gain digital asset exposure.

Self-custody: An ideal for some, a nightmare for others.

Customers can achieve a hands-on relationship with their crypto assets by getting started at centralized exchanges like Coinbase. Coinbase offers a user-friendly interface for buying and selling popular cryptocurrencies like Bitcoin, Ethereum, and Chainlink. While users can employ Coinbase’s digital wallets and vaults, they are also free to send their crypto externally. By moving their crypto to institutions like BlockFi or Nexo, investors can make use of lending and borrowing services to make more from their crypto portfolios. Or, in alignment with the old-school crypto adage, “not your keys, not your coins”, users can send funds to an address they control themselves to eliminate custodial counterparty risk. However, self-management of cryptocurrency funds can be time-consuming, stressful, and vulnerable to human error.

If stories of early investors losing millions of dollars of Bitcoin have made you wary of self-custody, you’re not alone. Unfortunately, human error is the usual cause for these funds being lost. You must understand a few Bitcoin basics to appreciate this: Because the Bitcoin blockchain is a public digital ledger, the public addresses of all Bitcoin are visible to anyone. When Bitcoin is transacted, it simply moves from one public address to another. Think of this public address as a username. For every public address, there is a corresponding private key, much like a password. Ownership of Bitcoin, therefore, lies in having the private key which corresponds to your public address

Naturally, your private keys need to be stored securely to keep your Bitcoin safe. At the same time, your private keys must be accessible if you ever want to transact your Bitcoin. There are numerous methods to private key self-custody, but each carries a considerable risk of a total loss due to user error, computer viruses, theft, destruction, etc. Since many people find these details too technical to self-custody their own cryptocurrencies, companies like Grayscale Bitcoin Trust and investment funds like Sarson Funds have emerged. With operational security measures, diversified asset storage, and insurance protection, these institutions offer products that give crypto-asset exposure without many of the drawbacks of self-custody.

Bitcoin Trusts

If you’re looking to trade cryptocurrency exposure just like stocks, Grayscale Bitcoin Trust (GBTC) could be for you. According to Barron’s, Grayscale’s own Managing Director Michael Sonnenshein explained, “We’re taking something that has a lot of frictions behind buying, holding, storing, and safekeeping, and making it familiar and transparent.” With over $27 billion in assets, Grayscale’s GBTC commands significant premiums for its accessible and trusted bitcoin-backed shares. In fact, demand is so great for this simplified method of exposure that investors have bought GBTC shares priced 40% over their underlying Bitcoin value. GBTC and other trusts may continue to trade at such premiums until cheaper alternatives, such as U.S. based Bitcoin ETFs, become available. However, investment vehicles like GBTC still lack a major feature seen in investment fund products: active management.

Investment Funds

Crypto funds combine strengths seen in other financial products to deliver what we believe is an ideal solution for many investors. At Sarson Funds, we leverage institutional-grade security to reduce risk while taking advantage of market movements via actively-traded funds. With this combined approach, our fund values are guarded while remaining liquid enough to take advantage of emerging opportunities. Because the technologies and use cases surrounding cryptocurrencies are growing rapidly, there is a robust market for quality research and risk-adjusted fund allocation. We exploit this opportunity-rich environment by monitoring the market, developing strategies, and executing trades on a routine basis. This dynamic approach enables investment funds like ours to outperform trusts which are more vulnerable to volatility. Our Crypto & Income Strategy became the top-performing crypto hedge fund in Q4 2020, testifying to active management’s ability to harness volatility to investors’ advantage.

No matter how you choose to invest in cryptocurrency, Sarson Funds is committed to providing transparent education as we report from the market forefront. We are thankful for you, our readers, and look forward to your continued engagement. If you haven’t already, follow us on Twitter, LinkedIn, and check out our newsroom. Or, send us a message! We’re always happy to talk crypto.

By Nathan Frankovitz

American Crypto: A Peek at Digital Wallets Under Federal Evaluation Shows the US May Not Be as Far Behind the Blockchain Curve as Feared

The Coronavirus pandemic has revealed a need for digital banking in the United States.

The United States has been accused, not always unfairly, of complacency as other countries around the world race toward digital currency adoption and claim leadership in shaping the future of digital finance. Information shared by Sarson Funds with insights into conversations happening at the highest levels in Washington, DC reveals that the United States may not be as far behind as assumed in the Blockchain Wars with China and other digital currency focused nations.

Digital Wallets Being Evaluated by the US Treasury Include Offerings from Crypto Payments Firm Metal, as Shown Here.

Few countries have more to gain from a rebuilding of the international financial system than China. Despite efforts to the contrary, capital restrictions on the movement of money into and out of China stopped the Chinese RMB from ever becoming a viable trade currency. China’s development of a two-tiered blockchain-based currency system – with a domestic currency and an international currency (the conversions of which must go through the PBOC) – seek to finally address this problem. China remains the global leader for the adoption of a digital currency, with digital wallets (shown below) and blockchain-based digital currencies already being implemented, such as the test programs recently launched in four Chinese cities.

China’s Digital Wallet, Launched in May 2020.

John Sarson, CEO of Sarson Funds, a Wall Street-focused digital asset investment management firm, comments that he believes the digital Yuan will be the first government-backed digital dollar to be utilized worldwide.

With the digitization of the Yuan and the support of neighboring countries, it is no shock that Sarson believes the Yuan will be the first globally accepted central bank digital currency, but where is the United States in this effort?

According to Sarson, the United States is not very far behind. “The United States government works most effectively when it looks to private industry for leadership,” notes Sarson, while also saying that it is encouraging to see the US Treasury soliciting technology solutions from crypto industry veterans like Metal Pay. Sarson continues, “Metal’s digital payment platform makes distributing and receiving digital payments anywhere in the world as simple as Venmo, without the barriers for citizens without bank accounts. Moves like this will catch the U.S. up to the rest of the digital-finance world in a hurry.”

Metal is one of a small number of FDIC-insured crypto payment platforms in the United States, as it allows users to send and receive payments with 0% transaction fees on cash – a presumed must for federal partnerships.

So, while China has expressed interest in developing a compatible infrastructure for cryptocurrency coexistence, Metal Pay is pioneering the effort on the American front. According to Sarson, the United States will need to lean heavily on its private sector – and would be wise to do so – if it hopes to keep up with the increasingly digital future of finance.