Bitcoin ETFs could open floodgates to $30 trillion wealth management market

Sopa
Images
|
Lightrocket
|
Getty
Images

Now
that

bitcoin
ETFs
are
trading
across
U.S.
public
markets,
many
large
money
managers
that
have
been
effectively
locked
out
of
crypto
finally
have
a
way
to
access
the
primary
digital
currency.

For
the
$30
trillion
advised
wealth
management
industry,
the
floodgates
could
be
about
to
open.
Analysts
at
Standard
Chartered
anticipate
fund
inflows
in
the
range
of
$50
billion
to
$100
billion
in
2024.

“Bitcoin
is
beginning
to
become
a
benchmark
asset
for
the
younger
generation,”
said
Anthony
Pompliano,
founder
of
Pomp
Investments.
“We
know
most
investors
can’t
beat
benchmarks,
so
adding
the
new
benchmark
to
your
asset
allocation
is
the
only
way
to
try
to
keep
up.”

Bitcoin
rose
as
high
as
$49,000
on
Thursday,
reaching
levels
not
seen
since
December
2021,
before
dropping
Friday
to
around
$43,000.
It
soared
150%
last
year
following
a
brutal
selloff
in
2022.

Wide
swaths
of
the
investment
world
missed
out
on
the
2023
rally.
According
to

VanEck

CEO
Jan
van
Eck,
many
fiduciaries,
financial
advisors
and
banks
had
been
explicitly
told
in
the
past
“not
to
touch
crypto,”
due
largely
to
its
unregulated
nature.

That
changed
on
Wednesday
after
the
Securities
and
Exchange
Commission
cleared
the
sales
of
spot
bitcoin
ETFs,
allowing
investors
to
access
bitcoin
the
same
way
they
purchase
stock
and
bond
index
funds.
SEC
Chair
Gary
Gensler

continues
to
issue
stern
warnings
when
it
comes
to
crypto
investments,
but
that’s
not
holding
back
activity.

watch
now

For
its

Hundredfold
Select
Alternatives
Fund,
mutual
fund
manager
Advisors
Preferred
Trust
is
investing
up
to
15%
of
total
assets
for
indirect
bitcoin
exposure
through
funds
and
futures
contracts,
according
to
a
recent
prospectus.

Pompliano
says
“most
passive
funds
are
looking
for
ways
to
increase
performance.”

Bitwise
Asset
Management
is
one
of
the
11
issuers
that
were
granted
initial
approval
for
a
bitcoin
product.
Chief
Investment
Officer
Matt
Hougan
said
the

Bitwise
Bitcoin
ETF,
which
is
offering
the
lowest
fee
at
0.2%
of
holdings,
is
primarily
targeting
financial
advisors
and
family
offices.

“That
includes
RIAs
[registered
investment
advisors]
and
includes,
eventually,
wirehouses
—
that
is
a
many
trillion
dollar
market,”
said
Hougan,
adding
that
advisors
are
“increasingly
carving
out”
an
allocation
of
1%
to
5%.
“We
know
that
they’re
interested
in
crypto,
and
we
know
that
they’ve
been
waiting
for
an
ETF.”

In
a
survey
of
financial
advisors
recently
conducted
in
conjunction
with
VettaFi,
a
data-driven
ETF
platform,
Bitwise
found
that
88%
of
advisors
interested
in
purchasing
bitcoin
were
waiting
until
after
a
spot
bitcoin
ETF
was
approved.
Among
advisors
who
already
invest
in
crypto,
large
allocations
(more
than
3%
of
a
portfolio)
more
than
doubled
to
47%
in
2023
from
the
prior
year.

“For
the
vast
majority
of
people,
a
low-cost
bitcoin
ETF
is
going
to
be
the
easiest
way
to
do
that,”
Hougan
said.

According
to
data
from

Robinhood,
81%
of
bitcoin
ETF
trading
volume
in
the
first
week
was
in
individual
accounts,
with
the
rest
in
retirement
accounts.

Even
before
the
SEC’s
announcement
Wednesday,
the

2022
CFA
Institute
Investor
Trust
Study
found
that
94%
of
state
and
local
pension
plans
had
some
crypto
exposure.
The
new
products
potentially
offer
more
legitimacy
and
lower
costs
for
retirement
plans
that
want
to
increase
allocation.

Financial
firms
are
offering
differing
advice
on
how
best
to
enter
the
space.

In
a

report
on
its
website
in
October,
Galaxy
Digital
said
the
“strongest
marginal
improvement”
occurred
when
portfolios
moved
from
a
0%
to
1%
bitcoin
allocation.
As
far
back
as
2019,

WisdomTree
said
that
adding
bitcoin
to
a
portfolio
that’s
traditionally
60%
equities
and
40%
bonds
“can
improve
the
risk-return
profile”
and
that
from
2014
to
2019
“even
a
one
percent
allocation
led
to
an
8.3%
outperformance
versus
the
base
portfolio.”

Fidelity

analyzed
performance
through
mid-2022
and
noted
that
“bitcoin
boosted
a
portfolio’s
returns
during
specific
periods
in
the
past,
though
it
also
came
with
substantial
volatility.”
To
date,
the
firm
said,
bitcoin
has
not
held
up
well
as
a
hedge
against
inflation,
but
it
acknowledged
that
“assessing
this
was
challenging,
given
that
inflation
has
been
low
throughout
most
of
bitcoin’s
history.”

Castle
Island
Ventures
founder
Matt
Walsh,
who
previously
led
a
number
of
Fidelity
Investments’
blockchain
and
cryptoasset
initiatives,
said
the
types
of
funds
quickest
to
jump
into
the
market
are
likely
to
be
those
with
a
focus
on
high-growth
tech
stocks.
But
he
also
sees
broader
appeal.