Bitcoin ETF fails to win the hearts of financial advisors

Omer Taha Cetin | Anadolu | beautiful images

A great argument all around bitcoin ETFs are financial advisors who need managed funds like them to direct their wealthy clients to invest in bitcoin.

Nearly six months after the launch of those ETFs, there are few signs that advisers are clamoring for them. Many people are still as averse to bitcoin as before. However, that doesn’t mean the ETF is a failed experiment. First, the bitcoin ETF has been hailed as the most successful ETF launch in history, with BlackRock’s iShares Bitcoin Trust (IBIT). hit $20 billion in assets under management this week, even with advisors sidelined.

“It’s something I’m working on because I think I’ll eventually introduce it, I’m not there yet,” Lee Baker, founder and president of Apex Financial Services in Atlanta, said in an interview. ”. “For me and other advisors, if we have more of a track record, that increases the likelihood of it making it into a client’s portfolio.”

CNBC spoke to dozens of members of the CNBC Advisory Board, including Baker, to find out why so many financial planners remain uninterested in bitcoin and bitcoin ETFs, and what might change their mind. It comes down to two main things: time to market and regulatory compliance.

“When [bitcoin] “That being said, even without regulation, over time this could prove to be a solid asset,” said Ted Jenkin, founder and CEO of oXYGen Financial in Atlanta. determined.” as a technology company – because my view on this is that this is technology sooner than money – you will see more adoption.”

Most advisors said they don’t initiate conversations nor answer client questions about ETFs — and most don’t have more than one client who has allocated 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 dismissive. .

Some of these advisors work with younger clients who are more risk-averse and have longer investment horizons. They say 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 the 2022 lows that were deeper during the FTX collapse. Over the past three, five, and 10 years, cryptocurrencies have increased by 85%, 704%, and 10,854%, respectively. It has also suffered some 70% price drops over the years, which not all investors can stomach.

Many hope the steady flow of money into bitcoin ETFs over the years might reduce that volatility, but for now, it remains a deterrent for some.

“Financial advisors now have ways to provide clients with access [to bitcoin] that’s safe, reliable and regulated,” said Bradley Klontz, managing director of YMW Advisors in Boulder, Colorado. “I like it… it’s a tool in our toolbox for for customers who want it. I just don’t see, right now, most firms recommending this 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, says most of her clients prioritize stability and long-term growth over high-risk opportunities and that “period is relatively “Bitcoin ETFs’ early performance in the financial landscape and the continued volatility associated with bitcoin” are key factors that keep bitcoin ETFs out of her investment strategy.

Cathy Curtis, founder of Curtis Financial Planning in Oakland, California, says she doesn’t know if bitcoin will become a stable asset class, but she would consider adding it to her clients’ portfolios if it showed see steady returns for at least 15 years.

“Maybe if it proves itself to be a real diversifier for stocks,” she said. “The history of that property hasn’t shown me that yet.”

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’re pretty conservative and somewhat risk-averse,” Baker said. “We are so used to pulling up charts and [asking] How does this thing work and through what kinds of markets – that’s pretty much how we’re wired.”

With a few more years in the market, he added, investors could implement a similar model with bitcoin, which would help advisors attract funds. He also said the support of advisers is a matter of when, not if.

“At this point… people should believe that [bitcoin’s] stay here, [they’re] “It’s just not understanding some metrics in the same way we might look at and value stocks or bonds,” he said. “We don’t have that foundation and that’s an additional reason for the slow uptake.”

“My guess is that it will be adopted slowly,” he added. “I have every confidence that we will start to see an upward trend in the use of advisors somewhere within 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 now exist in the US as a regulated investment vehicle, it is still not always obvious whether and when advisors can recommend them.

“A lot of this still has to do with compliance offices and what broker-dealers will allow in terms of advisors and ETF offerings,” he said. “Just because an ETF has launched doesn’t mean the floodgates have opened or that the ability to allocate to it is easy.”

Jenkin said some broker-dealers approved purchases of bitcoin ETFs, 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 a scar on the industry. Adding further points to the lack of regulation of the industry, which increases the chances of consumer complaints, potential lawsuits against broker-dealers and the possibility of being banned by the Financial Industry Regulatory Authority or FINRA fines.

“Part of the reason why this remains uncommon is because you have serious compliance issues in the industry,” Jenkin said. “A lot of firms are very worried 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 brokers are risk minimisers,” he added. “They want to allow advisors to do things for clients, but they certainly don’t want the spotlight to be on them to take on more risk. That’s why you see slow uptake on this issue.” this topic.”

Build confidence

Bitcoin and its ETFs need more time in the market to gain the trust and acceptance of major players like Vanguard, who famously announced earlier this year that they had no plans to offer them and will not change their views unless the change in assets becomes less. speculate.

“It’s going to happen,” Boneparth said of customer confidence. It will come with “more time – moving away from the early days into more mature days. We are about to go through years where exchanges fail – it’s not that Bitcoin failed, it’s that it muddied the waters [and] everyone’s trust”.

Until then, he added, the best position advisors can take is where they train their clients.

“While a bitcoin ETF may fundamentally be a less risky and more regulated way to invest in digital assets… its association with bitcoin still tends to discourage investment in digital assets.” [clients]”, Dorsainvil said.

Advisors will likely be more deterred by ether ETFs, given the greater complexity of that cryptocurrency’s use cases and functionality. Last week the Securities and Exchange Commission gave the green light for US exchanges to list Spot ether ETFwhich many investors predict will also be successful, but perhaps only a fraction of what bitcoin ETFs have achieved.

“ETFs have made it easier for institutions, from pension funds to large funds,” Boneparth said. “That’s really where we’re seeing the majority of the inflows into these bitcoin ETFs. … It’s still quite cumbersome at the retail advisor client level.”

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