We’re teaming up with our partners to bring you more insights into the innovative indices offered in our Model Marketplace. With Valkyrie’s Bitcoin and Ethereum SMA, advisors can provide clients with professional, actively managed exposure to the two largest digital assets by market capitalization.
What market conditions and investor needs drove the creation of this model?
Over the past decade, Bitcoin has gone from a small-scale experiment between a few cypherpunks to a global payments, banking, and investing powerhouse. Dubbed an alternative investment to traditional finance, Bitcoin’s growth has been fueled by the peaceful protest against the inevitable transition away from the use of fiat currencies. Already acting as a necessary emergency escape hatch for many in emerging markets, Bitcoin has gained increasing importance in the US during the banking and deposit crisis of 2023.
Along with Bitcoin, Ethereum has also emerged as the leading smart contract network with the full composability of decentralized finance. A hotbed for financial experimentation, Ethereum has grown into a multi-billion dollar incubator for the digital economy.
Amongst all digital assets, the price history of Bitcoin and Ethereum has acted in similar ways to S&P 500 and Nasdaq Composite, respectively. Bitcoin has had a decade of continuous success and is seen as a safe haven digital asset in the world of regulatory uncertainty. While Ethereum does have a higher beta than Bitcoin, its move-fast-and-break-things mentality can also lead to a more severe boom-and-bust price cycle.
What is the thesis or theme of the Valkyrie Bitcoin and Ethereum risk-managed model, and what is its key objective?
The Valkyrie Bitcoin and Ethereum risk-managed model seeks to provide a tailored approach to holding a majority weighting in Bitcoin and Ethereum during bullish periods and rebalancing to USD in bear market periods. Using a mixture of both fundamental and technical analysis, the model will aim to provide exposures to Bitcoin and Ethereum at varying percentages when the analysis justifies such allocations. Historically, although Ethereum has been fairly highly correlated to Bitcoin, Ethereum has also been more volatile and provided a higher beta than Bitcoin.
Fundamental analysis includes on-chain activity for each chain individually, as well as relative changes between Bitcoin and Ethereum. Technical analysis considerations will include signals on the BTC/USD, ETH/USD, and ETH/BTC pairs. Historically, a deep understanding of both fundamentals and technicals of Bitcoin and Ethereum has allowed for proper risk management of the cyclical price rotations into and out of digital assets.
“By taking a macro-focused, risk-managed approach, we are able to offer access to potential upside of digital assets for their clients while also aiming to limit downside risk.” – Steven McClurg, Valkyrie CIO
What currencies are included, what are the specifics of the model that really set it apart, and what strategies are utilized?
The model will include continuous daily monitoring of on-chain activity for Bitcoin and Ethereum, as well as mid-term and long-term technical analysis for BTC/USD, ETH/USD, and ETH/BTC. Rebalancing decisions for the model will be made once a week if necessary. Potential event-driven price action, such as macroeconomic factors and protocol changes, will also influence rebalance timing.
On-chain activity data will include transactions per day and active addresses per day for each blockchain. Values are assigned based on the rate of weekly change in on-chain activity, which then informs allocation decisions. Other on-chain data to be considered will include token exchange balances, miner and staking flows, age of coin movements, and realized coin price.
Baseline trend technicals will include the weekly 20-period moving average, the weekly relative strength index (RSI), the daily 10 and 50-period moving averages, and the daily Ichimoku Cloud. Other technical analyses to be considered will include chart patterns, the Wyckoff method, and volume analysis. Derivative funding and options flows will also be closely observed and used for consideration during overbought or oversold conditions.
What do you predict for digital markets in the year ahead?
Current macroeconomic headwinds continue to stress the regional banking sector, which turns to larger banking and finance institutions for assistance with containing possible contagion that may grow from these issues. Digital assets have been resilient during this period as the sector has provided solace from the traditional finance sector as designed. Larger cap protocols like Bitcoin and Ethereum continue to maintain dominance in the sector thanks to better transparency, security, and liquidity compared to other smaller cap options.
Progress in the regulation of digital assets should be viewed as an opportunity for tremendous growth in the sector. The formation of rules and guidelines will allow deeper integration within traditional finance platforms, providing efficient and secure access to more investors looking to diversify their portfolios in risk-appropriate vehicles. While current headlines related to enforcement could be viewed as negative, the digital asset sector continues to mature in these early stages, and ridding of bad actors is part of this process.
More about Valkyrie Invest
Valkyrie is a top-tier financial services firm that bridges the gap between traditional finance and the rapidly evolving digital asset industry. Based in Nashville, the team boasts a wealth of technical expertise in the blockchain economy and a track record of successfully launching investment vehicles across conventional markets.
Valkyrie is led by financial industry veterans with an extensive background across firms including Guggenheim Partners, MUFG, Ernst & Young, Chicago Board of Trade, Chicago Mercantile Exchange, and The World Bank.
With collective experience and proficiency, Valkyrie is positioned as the go-to solution for investors seeking access to cutting-edge cryptocurrency trusts, ETFs, SMAs, and hedge funds.
Disclaimer: This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed are solely that of Valkyrie Invest and do not express the views or opinions of Blockforce Capital or Onramp Invest.