Bitcoin rally: Should investors buy into reinvigorated crypto hype?

Bitcoin (BTC-USD) is one of the center focuses on Wall Street this week as the cryptocurrency hit a new all-time high above $72,000 per coin. While many investors are thrilled, some investors are cautious due to the extremely volatile nature of the asset.

Mizuho Americas Senior Financial Technology Analyst Dan Dolev and Matt Ballensweig, BitGo Managing Director and Head of Go Network, joins Yahoo Finance to discuss how investors can take advantage of the recent bitcoin rally.

Dolev actually starts by warning investors to stay away from crypto investing: "Let's talk about Coinbase (COIN) specifically, they are a take-rate business. And take rates are always bound to be a race to the bottom. And eventually, there's going to be more competition and they are already getting out pricing concessions. In January, they gave out a pricing concession for people who are trading 500,000 or above. So pricing pressure is starting and competition is heating up. So the fact that I don't believe in the underlying currency — bitcoin — that's one thing, but irrespective of that, I think Coinbase is that minus take-rate pressure and competition."

Ballensweig explains his bullish stance on the digital asset: "Institutions are starting to pile in through the nine new bitcoin ETFs. And the flows really don't lie here, there is demand for BTC as an asset. BlackRock through the IBIT ETF (IBIT) did $2 billion in volume yesterday. In total, the ETFs now hold over $55 billion in just their first 60 days of trading. So the flows really don't lie here."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

BRIAN SOZZI: The closing bell is fast approaching on Wall Street. But first, we're looking at how to navigate the big picture with the Yahoo Finance Playbook. [MUSIC PLAYING] As Bitcoin hits another all-time high, how much further the asset can climb is a hot investor debate. For a look at how to play it, we're joined by Dan Dolev, Mizuho Americas senior financial technology analyst, and Matt Zweig, BitGo managing director, head of Go Network.

Dan, let me get over to you. Because you've been really, you've been covering these stocks for a long time-- Coinbase, Robinhood, you name it, whatever it is. What are you telling investors at this moment?

DAN DOLEV: Stay away, stay away as much as you can.

BRIAN SOZZI: Why?

DAN DOLEV: In my view, it's still-- I don't see the reason for people to-- I mean, I mean, let's talk about Coinbase specifically, right? They're a take rate business. And take rates are always bound to be kind of a race to the bottom.

And, eventually, there's going to be more competition. And they're already getting-- they're already giving out pricing concessions. So in January, they give out a pricing concession for people who are trading $500,000 or above.

So pricing pressure is starting. And competition is heating up. So I think the fact that I don't believe in the underlying currency, Bitcoin, that's one thing. But irrespective of that, I think Coinbase is that minus take rate pressure and competition.

JULIE HYMAN: And just want to quickly follow to you, Dan, and before we get to Matt. Because you do have, as I understand it, if I'm not outdated, a buy rating on Block, which obviously is a much different business, but also there is a crypto tie-in there. So is your buy rating sort of irrespective of the crypto side of that?

DAN DOLEV: Actually, you're making like probably one of the best points ever. So--

JULIE HYMAN: I didn't even know.

DAN DOLEV: --I'll give you-- this is like a genius comment. Because I'm old enough to remember that back in 2017 and 2018 and even 2019, the reason Block, or Square at that time, was performing so strongly was because of the correlation with Bitcoin in the last cycle. And guess what? It broke. And the correlation-- the correlation doesn't exist anymore.

Does that tell you anything about Coinbase? It probably does. But on Square specifically, Bitcoin is like single-digit part of the revenue. I mean, 95% of the revenue has nothing to do with Bitcoin. And that's the reason I'm bullish on it.

By the way, same thing for Robinhood. I'm super bulled up on Robinhood, but not because of crypto, because of everything else, because of what they're doing in retirement, because of their growth in Europe, because of the leadership in equities and taking share from Charles Schwab. So this Bitcoin and crypto is the least important stuff, in my view.

BRIAN SOZZI: Matt, let me get you in here. Because nothing goes up in a straight line. And if investors are getting a little worried about this move in Bitcoin, how fast it has come on, are there certain Warning signs they need to be on the lookout for that there might be a pause in the cards?

DAN DOLEV: I mean, you're seeing it right now.

MATT BALLENSWEIG: [INAUDIBLE]

DAN DOLEV: Yeah, sorry. Oh, sorry. I thought it was a question [INAUDIBLE].

BRIAN SOZZI: Yeah, one for you, Matt.

MATT BALLENSWEIG: Yeah, no, I think look, I think you have to view this a lot bigger than any one specific company or any one pullback or drawdown. This is a global shift in the way people think about portfolio construction.

I think Pandora's box is now open entirely. Anybody can buy Bitcoin through their brokerage account. Institutions are starting to pile in through the nine new Bitcoin ETFs. And the flows really don't lie here. There is demand for BTC as an asset. BlackRock, through the iBET ETF, did $2 billion in volume yesterday. In total, the ETFs now hold over $55 billion in just their first 60 days of trading.

So the flows really don't lie here. And even more importantly than just some of these short term metrics around demand is you have two of the largest asset managers in the world in Fidelity and BlackRock. These are multi-trillion-dollar assets that have so much clout and weight on the market and can really drive what institutions do and how they think about their portfolios endorsing Bitcoin.

Fidelity the other day put out, basically, three different core portfolio structures, all which recommended crypto as a percent of that portfolio. This has dramatic implications on how hedge funds, asset managers, the whole IRA market thinks about utilizing crypto in portfolios. And, to me, this is just the early innings of that transition.

So I do think, sure, could there be pullback and if things get too hot, definitely. I think we've yet to see retail really pile in as though they have in previous cycles. So as funding rates start to become more expensive, as folks require more and more leverage, that will put pressure on the market. And I'm sure at some point, we will have a pullback. But I think zooming out, this is really a generational shift in the way that crypto is going to be viewed institutionally and at the retail level.

JULIE HYMAN: Matt, what is the best way for investors to get involved if they want to buy Bitcoin? What are the relative merits of buying it through one of these ETFs versus investing in Bitcoin itself?

MATT BALLENSWEIG: Yeah, I think, look, it's gotten a lot easier to get exposure to crypto and Bitcoin over the last few years. I think the floodgates are now open because it's extremely the ETFs. So there's a few ways.

Obviously, folks need to consider one just the cost of some of the ETFs that are in existence. These can be as expensive as 1.5% if you're talking about Grayscale or as cheap as 12 BIPs if you're talking about some of the others. Other things that need to be considered are, who's the counterparty, right? Who's actually holding the underlying Bitcoin here?

And if you look at ETFs like BlackRock and Fidelity, a lot of them are using Coinbase. BitGo is also another custodian that's starting to win some of the custody deals for a lot of the ETFs. BitGo, obviously, is a state-chartered trust entity in both South Dakota and New York. So you do have to look at the underlying, who's my risk to?

But I do think other ways to get exposure outside of just the ETFs are buying spot crypto yourself through one of the platforms out there. That could be BitGo. It could be Coinbase. It could be some of the other exchanges like Kraken or Fidelity.

And then, obviously, investors can think about other things, whether it's buying volatility, utilizing options or other derivative contracts such as futures. And then, obviously, there are other public equity proxies out there as well, you know, obviously Coinbase stock and MicroStrategy or some of the minor companies like Hut 8, Marathon. So there are now a host of different ways to take exposure to the space. But I think investors really just need to think about the actual volatility of the asset, the counterparty risk of who they're facing and the platform they're holding those assets on, and then, what are the fees and costs associated with getting that exposure? So I would advise any investor to just kind of do their diligence in that sense.