Is BTC worth buying the dip? Here's what a pro stock investor says

So Elon isn’t going to approve BTC for Tesla payments after all, because it’s bad for the environment (cue major selloff).

But just to clarify, Tesla hasn’t sold its BTC yet (cue a bounce off the lows).

When one man moves a US$850bn market around like that via his Twitter account, it poses a question for crypto investors; hodl?

To help answer that we spoke yesterday with someone who allocates capital for a living how they view the market.

James Whelan from VFS Investment Management provided some nuanced takes on BTC — except when it comes to a certain rocket-launching, flame-throwing entrepreneur.

“He (Musk) has already done some pretty ordinary things in terms of running a company and dealing with his shareholders,” Whelan said.

“Now look at what’s just happened – an unregulated non-financial product was allowed to be manipulated by someone with a huge following. He’s gone and crashed it on them and they’ve got no one to bitch to.”

“So if you want to trust a guy that like that to be your flag waver for what you’re calling a financial asset — that’s when you need to just take it easy.”

Deep crypto breaths

As a manager of client money, Whelan’s job is to strike the balance between buying up A$$coin with 10x leverage on BitMEX and facilitating viable long-term exposure to a growing alternative asset class.

While he’s wary of the current market structure, he’s not a crypto sceptic.

And as a money manager he has front-row insights into where retail investors want to put their money.

Right now, the need a lot of clients have is to be “involved in this new space”.

It leaves asset management firms like VFS looking for avenues to market access that fall within their legal obligations, given the bulk of digital assets are still unregulated.

“Finding somewhere that meets in the middle where you can still service clients is difficult to do,” Whelan said.

Gold, shovels…

Earlier this year, VFS thought it found the balance when US exchange Coinbase listed publicly.

For starters, Coinbase fit within the old investment narrative that it’s always better to own picks and shovels in a gold rush, rather than gold itself.

Secondly, it struck the right mix; regulated investment exposure to unregulated asset markets.

But Coinbase shares have lagged in the early going and the company chose the route of a direct listing, rather than employing third-party underwriters.

“Their new user numbers didn’t hit it out of the park. We thought there would have been more take-up in the (Coinbase) app after the listing,” Whelan said.

Going direct means you can avoid regulatory hang-ups, but it also means underwriters aren’t there to pick up the slack if you need extra capital.

“Now they need more money so they’re raising capital gain which we kind of knew was going to happen. But the user numbers just weren’t there so it left us thinking ‘maybe this isn’t the right way to get into this’,” Whelan said.

Where to next…

Maybe a Bitcoin ETF? The US Securities and Exchange Commission (SEC) last month delayed its ruling on an ETF application by VanEck for another 45 days, until mid-June.

A Bitcoin ETF has long been trumpeted as a key step in crypto’s integration to traditional asset markets, but so far the SEC has ruled the underlying security (BTC) is too volatile and unregulated to warrant one.

Separately, US regulators have reportedly begun an investigation into Binance, the world’s biggest crypto exchange by trading volume which is registered in the Cayman Islands.

But however the regulatory landscape plays out, as an asset manager Whelan is fairly definitive on the long-term direction of crypto integration.

“Through one way or another, various digital assets and the tech around them will become more integrated with financial markets and everyday transactions,” he said.

“But with a decent system like that you just need people to be careful treating it like a financial asset.”

From the Mt Gox hack to the ‘white paper’ scams to the 2017 ICO craze, it’s a “licence to take money away from suckers because it’s not regulated”, Whelan says.

Portfolio construction

As a pro investor with a mandate to invest in regulated asset classes, Whelan is fairly engaged with crypto.

He dabbles himself, with a small holding in Helium (HNT) — about the 50th largest crypto by market cap which incentivises users to run localised telecommunications hubs by allocating tokens in exchange for network power.

He was involved in the early stages of Grow Super, an early adopter of blockchain technology to standardise and collate customer details (mainly to address the problem of lost super).

And he’s held talks with Sergei Sergienko, the entrepreneur heading up a DeFi-based crypto investment fund backed by Aussie rich-lister Mark Carnegie.

“Sergei’s a gun. The most humble, smartest guy I’ve met in tech, and Carnegie has him doing his thing for a reason too,” Whelan says.

“So there are legitimate questions being asked about ‘OK, what purpose does this serve? What makes the world a better place and helps people?

“That’s where I think some rays of sunshine are coming out of those gloomy shitholes the ‘Lambo boys’ have created for themselves.”

In fact, if you’ve done the research and you’re comfortable about the environmental impact of mining, Whelan says BTC is a long-term hold that’s worth buying on big dips. So is Ethereum.

“I’m not against it, I just want people to be aware that you’re holding an asset that trades on momentum and is really volatile,” he said.

“And it trades over the weekend so there’s no switching off. But I think crypto or crypto-related assets should probably be part of a growth portfolio.”