Being a relatively new company, founded in April 2015, you would expect it to follow trends, but it has yet to update its services to what it now seems inevitable: Cryptocurrency.
The financial services company, M1 Finance, currently does not offer trades in cryptocurrency.
This reading is divided into two sections; the first one relating why we believe M1 has not implemented cryptocurrency into their services and the second reading dives into why and how and when do we believe that M1 Finance will implement cryptocurrency.
Cryptocurrency is too volatile
M1 Finance seems to be focused on more responsible clients; giving you a limit on your portfolio, and offering a wide variety of investment categories including retirement investing and socially responsible investing.
On the contrary, direct competition such as Robinhood has taken a lot of heat from the media, as it has been widely considered the go-to platform for newcomers where ordinary people are buying out of the call options and “YOLOing” their life savings and college funds. Although cryptocurrency looks like it is here to stay, it is still highly volatile and an investment that most of us can’t fully understand.
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M1 Finance is a Robo-adviser
Most Robo-advisors engage in trading with little to no human intervention in conservative and passive investment strategies. Adding crypto to the formula brings too much risk that the system might not quantify properly: either over or under considering the risk measures of the investment. Maybe the technology is not at its peak yet.
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M1 Finance is an investment platform
In reality, cryptocurrency has no intrinsic value or price anchor. Although it has high performance, and Bitcoin is the world’s best-performing asset class over the past 10 years, it is really all speculative and therefore not an investment. Many people still consider cryptocurrency a bubble.
Yes, we will (most likely) see cryptocurrency in M1 Finance in the future. Not today, not tomorrow, but most like in the upcoming years. It is more than clear that cryptocurrency is here to stay, and although most respectable investors, such as Warren Buffet, consider crypto as an unproductive asset, many of Berkshire Hathaway’s portfolio of companies are involved with cryptocurrency in one way or another. In fact, Bank of America is not offering crypto exchange-traded products and just recently approved the trading of bitcoin futures.
Cryptocurrency is becoming extremely popular among millennials that are starting out their investment portfolio and also have relatively higher risk tolerance. Leaving cryptocurrency out of the trading platform’s services might become a deal-breaker to new investors.
Another alternative to directly be able to invest in cryptocurrencies is through derivatives and Exchange-traded funds. M1 finance will probably not implement derivative strategies concerning cryptocurrencies anytime soon, as these are mostly levered and considered high risk and include concepts that the average new investor does not fully grasp.
Additionally, because M1 Finance prefers conservative approaches, it is more than likely that they will not add cryptocurrency directly to their services but instead, they will give the option to have exposure through several ETFs; this will allow investors to have exposure to several cryptocurrencies without directly owning them.
Amplify Transformational Data Sharing ETF (BLOCK), Siren Nasdaq NexGen Economy ETF (BLCN), and First Trust Indxx Innovative Transaction & Process ETF (LEGR) are amongst the most popular ETFs that offer exposure to cryptocurrency at the moment; it is expected that at least one of these will be allowed in M1 Finance in the near future.
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How does the future look like at M1 Finance?
By the looks of it, M1 Finance is here to stay. Although relatively new, the firm reported in January 2021 that it had more than $2 billion in assets under management with over half a million clients.
It is also investopedia.com‘s top choice “for sophisticated investors due to its unique combination of automated investing with a high level of customization, allowing clients to create a portfolio tailored to their exact specifications”. It is also a top choice to many investors because they don’t charge any management, trading, nor deposit/withdrawal fees if connected to a bank account.
The platform also holds new and notable features such as M1 Spend which earns 1% cashback on purchases; M1 Plus which is for members that pay $125 per year and includes perks such as 1% interest on cash balances and lower interests in loans; M1 Borrow, a 3.5% interest on a line of credit with over $10,000 used for margins; and Smart transfers, that transfers instantaneously any amount of money to an investment account when the cash balance is above the threshold that the customer (Plus member) sets up.
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M1 Finance is an impressive and unique platform that sways investors with its incredible features. The platform’s rapid growth is proof of its quality, definitely an up-and-coming star in the trading business.
Although the platform has its cons, we believe that one of the biggest setbacks is the lack of cryptocurrency exposure that most new investors are seeking of some sort. Additionally, M1 does not let users consolidate external accounts for planning purposes, which means that your pie will not account for the risks carried in other trading platforms.
However, due to the competitiveness in the brokerage industry, we believe that in order for M1 to continue its growth, it must allow some sort of exposure to cryptocurrency in one way or another, where it be by directly purchasing the coins, buying derivatives, or bring able to acquire ETFs.
Regardless of whether the platform decides to allow cryptocurrency tomorrow or un a few years ahead, their quality of services mixed with its nonexistent fees is more than good enough of a reason to give it a try. It is definitely a platform that newcomers would be encouraged to use as it gives certain limits to prevent YOLO investing and actually focus on responsible and passive investments that are aimed for the long term.
Author: Joaquin Morales Schoneke
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