According to CNBC, the long-standing practice of 'HODLing' or holding on to bitcoin despite its extreme price fluctuations, may decrease as the adoption of exchange-traded funds (ETFs) increases. This change is expected to occur particularly among traditional investors who are used to regularly rebalancing their portfolios and are now adding bitcoin exposure. The cryptocurrency has become more institutionalized in recent years, and this trend is expected to grow with the launch of ETFs that track bitcoin's price.
Donald Marron, director of economic policy initiatives at Urban Institute, stated at the 2024 Vision conference in Austin, Texas, that many people in the community are 'diamond-handed holders'. He suggested that if these individuals allocated 1% to bitcoin and never touched it, they could see significant wealth gains if bitcoin prices continue to rise. However, Marron also noted that traditional asset allocation could lead to questions about rebalancing portfolios, which could mean selling off some bitcoin.
Julio Moreno, head of research at CryptoQuant, pointed out that every HODLer eventually becomes a seller. Currently, long-term holders are selling, which is typical during bull markets, after accumulating bitcoin during the bear market. Matt Hougan, chief investment officer at Bitwise Asset Management, suggested treating bitcoin like any other asset and including it in the rebalancing process. He noted that adding rebalancing to a portfolio can dramatically increase 'sharpes' and other measures. Sharpe ratios help investors assess the return they get from an investment relative to the amount of risk they take.
Michael Allegue, an investment officer at MassMutual, suggested that rebalancing could help reduce bitcoin's notorious volatility, which often deters many investors. As more institutional capital enters the market, there's potential for volatility dampening as many firms, including MassMutual, will likely be rebalancing accounts rather than purely buying and holding.