In January, the long-awaited bitcoin exchange-traded funds were finally launched, and financial advisors are starting to embrace them. According to BlackRock’s Samara Cohen, the adoption is happening gradually, with about 80% of bitcoin ETF purchases being made by self-directed investors. However, hedge funds and brokerages have also shown interest, based on recent 13-F filings. Despite this, registered investment advisors have been more cautious about these new products.
Reasons for Caution
The CNBC Advisor Council recently conducted a poll to gather insights on why financial advisors are hesitant to fully embrace bitcoin ETFs. Some of the reasons cited include bitcoin’s price volatility, the cryptocurrency’s relatively short track record, regulatory compliance issues, and concerns about fraud and scandal in the crypto space. Cohen acknowledged that financial advisors have a fiduciary duty to their clients to construct portfolios with thorough risk analysis and due diligence, and this cautious approach is necessary given the nature of the asset class.
Cohen sees bitcoin ETFs as a bridge between traditional finance and the world of cryptocurrency. They provide a regulated and familiar investment product for investors who are interested in adding bitcoin to their portfolios without having to navigate separate ecosystems. By providing important data and risk analytics, financial advisors can determine the appropriate allocation of bitcoin based on the investor’s risk tolerance and liquidity needs. This journey towards adoption of bitcoin ETFs is seen as a step in the right direction by Cohen.
Coinbase’s chief financial officer, Alesia Haas, described bitcoin’s adoption as a slow process, a sentiment that was echoed throughout the conference sessions. Blue Macellari, head of digital assets strategy for T. Rowe Price, highlighted the 1% allocation that some investors consider to be a safe and comfortable amount for bitcoin. She sees portfolio allocations into bitcoin as binary events, where the allocation should be either greater than 1% or zero. However, she also emphasized the need for a cautious approach towards adoption, as investors need to gradually test the waters and become comfortable with the idea of including bitcoin in their portfolios.
Overall, the acceptance of bitcoin exchange-traded funds among financial advisors is a positive step towards integrating cryptocurrency into traditional investment strategies. While there are valid reasons for caution, such as price volatility and regulatory concerns, the gradual uptake of bitcoin ETFs indicates a growing recognition of the potential benefits of including cryptocurrency in investment portfolios. As financial advisors continue to navigate this evolving landscape, it is crucial for them to prioritize thorough risk analysis and due diligence to ensure the best outcomes for their clients.
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