Risk-averse Bitcoin Investments to Buy for Exposure

Risk-averse Bitcoin investments to buy for exposure to cryptocurrencies help to avoid the worst of the volatility that can spur anxiety.

One of the most relevant comments about how investors can lose confidence quickly came from former Presidential candidate Steve Forbes. I once interviewed him about people who became jittery when the market drops and he responded that everyone is a “disciplined, long-term investor” until the market goes down.

To dodge the worse of the downside, investment firms are starting to create funds that capture upside potential without the big plunges that have occurred with Bitcoin in the past. With Bitcoin soaring 100.80% in the past, many investors understandably are looking to tap into the opportunity.

Risk-averse Bitcoin Investments to Buy for Exposure: Connell’s Counsel

Some of the investors seeking to profit from Bitcoin and other cryptocurrencies are clients of Michelle Connell, who heads Dallas-based Portia Capital Management. She advised me that an allocation to cryptocurrency of up to 5% makes sense for some of her Portia Capital Management clients.

However, risk management of these new assets is needed, Connell counseled. That explains her cautious approach to investing in cryptocurrencies, causing her to weigh in with cryptocurrency ETFs that have cover calls and other forms of downside protection, while still providing upside participation and income.

One risk-averse way to invest in Bitcoin is through First Trust’s Vest Bitcoin Strategy ETF (BFJL), said Connell, who spoke to me on the phone while she was driving to Morgan City, Louisiana, with a videographer. The fund seems like an interesting way to participate in the upside of Bitcoin, but “miss” some of its downside, she added.

Chart courtesy of stockanalysis.com.

“In the past three years, Bitcoin has made almost 150%,” Connell told me. “In the last year, the cryptocurrency has made 100%.”

However, Bitcoin’s climb has slowed down this year as it has gained about 25%, Connell continued.

Michelle Connell heads Portia Capital Management.

Risk-averse Bitcoin Investments to Buy for Exposure: Bitcoin’s Boost

When those results are combined Bitcoin’s maximum “draw down” over the past three years has been almost 30%, even though the cryptocurrency rose during that time overall. Many people get nervous and cannot hold onto something when a loss occurs, she added.

“As a Bitcoin investor, if you can minimize your downside to 15% and still make 30% on the upside, wouldn’t you be interested? That’s what I’m asking clients now.”

If the investment were to “behave similar” to its past performance, an investor would be capturing most of the cryptocurrency’s recent upside and minimizing your losses by quite a bit. Connell counseled.

Chart courtesy of coinmarketcap.com.

Risk-averse Bitcoin Investments to Buy for Exposure: Limits on Downside and Upside

First Trust’s BFJL is designed to give investors a “12-month targeted outcome” with the downside maximized at 15% and the upside topping out at 30% for that time period, Connell explained. The ETF’s expense ratio of .90%, “not too bad” for this level of participation in a cryptocurrency, she added.

“We know that Bitcoin has been a highly profitable investment over the past several years, but it also is highly volatile,” Connell said. “Why not truncate some of the risk?”

Connell’s interest in putting some of her clients into cryptocurrency investments is not what one may expect of a money manager who also advises leaders of a municipality to fund city services. Morgan City, Louisiana, 85 miles from New Orleans, relies on Connell to help manage the community’s largest foundation that funds the schools, the fire department, the police department, as well as the construction of a new youth center and other services.

Despite her risk-averse philosophy in protecting yet growing a municipality’s resources to fund so many of its critical services, Connell expressed the value of diversification and the opportunity for upside by putting some money into cryptocurrencies.

Risk-averse Bitcoin Investments to Buy for Exposure: Skousen

Another way to limit downside is to invest in stable coin funds. That is a strategy of Mark Skousen, PhD, who heads the TNT Trader advisory service with his son Tim Skousen. The advisory service recommended its first stablecoin investment company on Tuesday, Sept. 9. A stablecoin is a digital token that is backed by assets.

TNT Trader recommends both equities and options. It gives investors a chance to limit their risk of indulging in an urge to seek fast profits while accepting increased risk.

Mark Skousen, head of TNT Trader and Forecasts & Strategies, meets with Paul Dykewicz.

A key reason why cryptocurrency investing is gaining appeal is the Genius Act, backed by President Trump, according to the TNT Trader advisory service. TNT Trader currently also recommends Solana and Bitcoin.

Risk-averse Bitcoin Investments to Buy for Exposure: Stablecoins

The market has seen signs that Solana will quickly follow with big moves, Skousen advised his subscribers. But Solana has been volatile, too. Near the market’s close on Aug. 16, Solana had jumped 5.31% to $197.25 in the prior eight hours. Early in the morning of Friday, Aug. 29, Solana fell 5.09% to $206.06, but jumped to $209.20 on Sept. 2 when it soared 6.74% that day. It traded at $242.28 as I wrote my column Friday evening, Sept. 12. It dipped to $236.48 by Tuesday evening, Sept. 16.

Stablecoin funds have the potential to become an income-generating investment strategy. Those stablecoins are tied to cryptocurrency that is pegged to another asset like a fiat currency, such as the U.S. dollar or the euro. Gold also can be aligned with stablecoins.

One difference is that fiat currency is backed by a government rather than a physical commodity such as gold or silver, allowing central banks around the world to exert control over economic conditions by using liquidity and interest rates. Stablecoins provide an alternative to volatility shown by cryptocurrencies. In addition, stablecoins serve as bridge currency to help crypto traders switch between volatile assets.

Stablecoins also can be used in various blockchain-based financial services. The term “stablecoin” is a misnomer, since there is no guarantee that it holds a steady value in relation to a fiat currency or gold when traded on secondary markets. Nor is there assurance any reserve of assets, if used, will be adequate to satisfy all redemptions, according to Coinbase Global, Inc. (NASDAQ: COIN).

Fully backed by U.S. dollars and U.S. dollar equivalents, USDC was developed to represent a U.S. dollar equivalent on chain. USDC can be used to send, store and receive money between people and businesses without the need for third-party financial institutions.

Risk-averse Bitcoin Investments to Buy for Exposure: Retired Pension Fund Chairman 

The recently passed U.S. GENIUS Act, signed into law by President Trump on July 15, sets rules for stablecoin, wrote Retirement Watch investment newsletter leader Bob Carlson, a retired pension fund chairman.

The GENIUS Act is supposed to reduce the ability of stablecoin issuers to commit fraud or issue tokens that lack sufficient asset backing, Retirement Watch reported. The law also prohibits stablecoin issuers from offering interest or other payments to users. The coins are supposed to be used for payments, not as investments.

Bob Carlson heads Retirement Watch.

“The Genius Act requires 100% reserve backing with liquid assets like U.S. dollars or short-term Treasuries and compels issuers to make monthly, public disclosures of the composition of reserves,” according to the White House. “Stablecoin issuers must comply with strict marketing rules to protect consumers from deceptive practices. Crucially, they are forbidden from making misleading claims that their stablecoins are backed by the U.S. government, federally insured or legal tender.”

In the stereotypical stablecoin, an issuer takes money from users and buys U.S. Treasury bills with that money, Carlson commented.

“The issuer receives and keeps any interest earned on the treasury bills,” Carlson counseled. “The bills are sold when users redeem the stablecoins or transfer them to someone else, such as to pay for goods or services. Banks already are objecting that there are loopholes in the law.”

Risk-averse Bitcoin Investments to Buy for Exposure: Geopolitical Risk

Russia’s President Vladimir Putin’s military keeps attacking Ukraine unrelentingly, even taking aim at government targets in Kyiv with one of the largest air strikes in the war that now has been spanned more than three-and-a-half years. It marked the first time a government building in Ukraine has been hit since Russia began its attacks.

Russia drones also infiltrated airspace in Poland. The Polish military down some of the drones to defend their country.

Without question, investors and traders face rising geopolitical risk. President Trump said in early September that he is “very disappointed” in Russia’s President Vladimir Putin and renewed talk about taking punitive action against Russia if it keeps attacking civilians and continuing its three-plus-year invasion of Ukraine.

The Trump administration recently approved a $825 million arms sale to Ukraine for extended-range missiles and other equipment to aid its defensive capabilities. The State Department announced Thursday, Aug. 28, that it notified Congress about selling extended-range attack munition missiles and navigation systems to Ukraine. The sale includes related spare parts, components and other accessories, as well as training and technical support.

In July, the Trump administration approved two other weapons sales to Ukraine, with one worth $322 million to lift air defense capabilities and provide armored combat vehicles, while the second, worth $330 million, for air defense systems, maintenance, repair and overhaul of self-propelled artillery vehicles.

Ukraine officials announced plans to use funds from United States and NATO allies Denmark, the Netherlands and Norway to pay for the equipment. The proposed sale will support the foreign policy and national security objectives of the United States by improving the security of a “partner country” that is a force for political stability and economic progress in Europe, according to the State Department.

In the meantime, Russia is escalating its attacks, hitting civilian sites and now government sites in Ukraine, as well as gaining control of additional sovereign territory of its neighboring nation.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for multiple-book pricing.