Even though the Bitcoin Spot ETF has been launched for over 5 months and attracted huge inflows, reaching over 1 million BTC in assets under management (AUM), financial advisors are still skeptical and completely on the sidelines the.
A major argument surrounding Bitcoin ETFs is that financial advisors need managed funds to direct their wealthy clients to invest in Bitcoin.
There is little indication that advisers are guiding investments in these funds. Although many people still have an aversion to Bitcoin, that does not mean that ETFs are a failed experiment. First, the Bitcoin ETF has been hailed as the most successful ETF in history, with BlackRock's iShares Bitcoin Trust (IBIT) reaching nearly $20 billion in AUM this week, even as advisors are still watching from the sidelines .
Source: sosovalue
Lee Baker, founder and president of Apex Financial Services in Atlanta, said:
“I'm still working on it and if it gets more of a track record, it will likely make its way into clients' portfolios.”
So, why are so many financial planners still not interested in Bitcoin and Bitcoin ETFs? What can make them change their attitude? The answer is mostly time to enter the market and comply with regulations.
Ted Jenkin, founder and CEO of oXYGen Financial in Atlanta shares:
“As Bitcoin becomes more regulated, you will see more adoption. Even without regulation, if it can prove itself as a stable asset as a technology company over time – because my view on this is that the technology is more primitive than the money – there will be more acceptance.”
BTC holdings of Bitcoin ETFs as of May 30. Source: CryptoQuant
Most advisors said they did not initiate conversations nor answer client questions about ETFs – and most had no more than one client who had allocated capital to the fund. Among those advisors, some are proactively educating themselves about Bitcoin investing, while others – often those with older, more traditional and conservative client bases – are more averse. .
Some of these advisors work with younger clients who are more risk-averse and have longer investment horizons. They said their clients were already interested and educated about crypto exposure before this year and the emergence of ETFs did not motivate them to jump in.
Performance evaluation
At 15 years old, Bitcoin is in the maturity equivalent of a teenager – it has great potential but still has a lot of volatility. Bitcoin is up more than 59% this year and about 230% from its 2022 lows, hit by the collapse of FTX. Over the past 3, 5, and 10 years, cryptocurrencies have increased by 85%, 704%, and 10,854%, respectively. It has also suffered some 70% price drops in recent years, which not all investors can stomach.
Many hope the steady flow of money into spot Bitcoin ETFs over the years might reduce that volatility, but for now, it remains a deterrent for some.
According to Bradley Klontz, managing director of YMW Advisors in Boulder, Colorado:
“Financial advisors now have a way to provide clients with access to Bitcoin in a safe, reliable and regulated way. I like it… it's a tool available to customers who want to get a grip. I just don't see, right now, most firms recommending that because they don't recommend any asset class or any particular asset that has that much volatility.”
Rianka Dorsainvil, co-founder and co-CEO of 2050 Wealth Partners, said most of her clients prioritize long-term stability and growth over high-risk opportunities and emphasized that “the “The relative earlyness of Bitcoin spot ETFs in the financial landscape and the continued volatility associated with Bitcoin” are key factors that keep these funds out of her investment strategy.
Cathy Curtis, founder of Curtis Financial Planning in Oakland, California, stated that she does not know whether Bitcoin will become a stable asset class but that she would consider adding it to her clients' portfolios if it showed see steady returns for at least 15 years.
“It could make its way into a portfolio if it proves to be a real diversifier against stocks. However, the history of the property has not shown me that.”
Tremendous drops from Bitcoin's ATH since 2015. Source: CNBC/Coin Metrics
Apex Financial's Baker points out that investors have decades of software and tools to show them how much a certain percentage of a bond, ETF or other asset in a portfolio can raise. high returns or increased volatility, etc.
“As a group, we are quite conservative and somewhat risk-averse. We're so used to looking at charts and looking at how an asset class is performing and through what types of markets – that's pretty much how we're wired.”
After a few more years in the market, investors could implement a similar model with Bitcoin, which would help advisors attract funds, he added, citing the support of investors. Mentoring is a matter of when, not if.
“At this point… people should believe that Bitcoin is here to stay, it's just that there are a few metrics we can't yet understand in the same way that we're looking at and valuing stocks or bonds. We don't have enough platforms and that's another reason why the rate of exposure is slow.”
“My guess is that it will be adopted slowly. I have every confidence that we will start to see an uptick in usage by advisors over the next two to three years.”
Not enough regulations
According to Douglas Boneparth, founder and president of Bone Fide Wealth in New York City, although Bitcoin ETFs currently exist in the US as a regulated investment vehicle, the ability and timing of advisors to The possible introduction of these funds remains uncertain.
“Much of this still involves the important role of compliance offices and brokers in identifying the ETFs that advisors can offer. While there are new ETFs being introduced, the process is not always straightforward due to compliance factors and broker restrictions. Allowing a new ETF does not ensure that advisors can easily allocate capital to them.”
Jenkin said some broker-dealers approved Bitcoin ETF purchases, but limited the amount that could be purchased, and other firms did not allow advisors to sell Bitcoin ETFs.
Some say it's because cryptocurrencies are notorious for fraud, scandals and crime – a situation that becomes clearer each year but has certainly left its scars on the industry. Furthermore, the lack of regulation in the industry has increased the chances of consumer complaints, potential lawsuits against broker-dealers, and potential fines from the Financial Industry Regulatory Authority (FINRA). .
“Part of the reason why it hasn't caught on yet is because there are serious compliance issues in the industry. A lot of firms are very concerned about the communications that financial advisors are having with their clients about digital assets, and none of them want to run afoul of FINRA.”
“Most broker-dealers want to minimize risk. They want to allow advisors to do things for clients, but they certainly don't want the spotlight to create more risk. That's why adoption has become stagnant.”
Building trust
Bitcoin and ETFs need more time in the market to gain the trust and acceptance of major players like Vanguard – which announced earlier this year that it has no plans to offer Bitcoin The ETF is spot and will not change its stance unless the asset becomes more mature.
Boneparth is optimistic about increased customer trust, saying that this will come over time as the cryptocurrency industry matures. He emphasized that the industry has faced a series of challenges, such as the failure of exchanges, which has affected user confidence in Bitcoin and other cryptocurrencies. However, he believes that as the industry matures, confidence will increase, especially as it moves beyond its early stages.
Until then, the best thing advisors can do is educate their clients.
“While Bitcoin ETFs may fundamentally be a less risky and more regulated way to invest in digital assets… the association with Bitcoin remains a major barrier for customers,” Dorsainvil commented.
Advisors may have a greater aversion to spot Ether ETFs, due to the greater complexity of the cryptocurrency's use cases and functionality.
Last week, the Securities and Exchange Commission gave U.S. exchanges the green light to list spot Ether ETFs, which many investors predict will also be a success, but perhaps only a fraction. small compared to what Bitcoin ETFs have done.
“ETFs have made it easier for institutions, from pension funds to large funds. “Most of the money flowing into this Bitcoin ETF is coming from those funds… It's still quite cumbersome at the retail advisor client level,” Boneparth shared.
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