While the SEC’s approval of 11 spot Bitcoin ETFs last week might go down as a major crypto milestone, advisors, for the most part, are approaching them with caution, if at all.
Many advisors haven’t been asked by their clients about the spot Bitcoin ETFs and many that Wealthmanagement.com have spoken to are not proactively recommending them or adding them to their model portfolios, even in the few cases where they can.
There were exceptions among the advisors WealthManagement.com heard back from through queries put out through the Financial Planning Association, the XY Planning Network and through calls to advisor sources, but not many.
Christopher Haigh, the CEO of Iconoclastic Capital Management in Rochester, New York, which has three advisors and $45 million in AUM across 50 fee-only planning households. Haigh said the firm has already implemented a spot Bitcoin ETF allocation to their model portfolios and has assigned client assets directly to cryptocurrency in the past through companies like Bitwise and Paxos.
Another proponent is Bryan Courchesne, CEO and founder of Digital Asset Investment Management in Newport Beach, Calif., a fully licensed RIA focused specifically on digital assets with two advisors and $25 million in AUM. His firm has been involved in direct cryptocurrency investment for years, he said. Since many broker-dealers and trading platforms have yet to enable the Bitcoin ETFs, many client buyers that would have invested have found other avenues to the cryptocurrency. Courchesne said he’s looking to the future when more brokers and trading platforms have compliance approval and technological developments in place to handle them.
A far more common refrain among advisors large and small was one of caution or outright abstinence toward the new offerings.
Tony Welch is the chief investment officer at SignatureFD in Atlanta, which has 27 advisors, 113 total employees and around $7.4 billion in AUM. While the spot Bitcoin ETF approvals are a benefit to clients who want a lower barrier of entry to invest in cryptocurrency, he said client demand has been muted. SignatureFD has yet to add it to its traditional portfolios but does have the ability to offer it to clients who might want that exposure in the future. Welch said he viewed Bitcoin in the same way as a highly concentrated emerging technology investment with high potential gains but a lot of volatility.
“There’s nothing we can anchor back to [Bitcoin] from an intrinsic value perspective,” he said. “The approval of the ETFs doesn’t make it more exciting to us.”
Chuck Cooper III, advisor and managing partner with StrongBox Wealth, an RIA in Lee’s Summit, Mo., which manages $400 million in client assets, said his firm has a negligible amount of client assets in a bitcoin SMA managed by Eaglebrook Advisors. But that was done only upon client request, and StrongBox will not proactively recommend the ETFs to clients, nor add them to its inventory for inclusion in clients’ managed portfolios.
“We have no plans to institutionalize the bitcoin ETFs as part of our offerings in both the customized as well as the model client portfolios,” Cooper said. “The bottom line is, we consider cryptocurrency as a speculative asset, which warrants no mainstream adoption within our core managed model solutions.”
“Just because it’s there and approved does not equate to us then expanding our offerings,” he added.
Alexandra Makowski is an advisor with CFS Investment Advisory Services, which has eight advisors, 14 total employees and around $2 billion in AUM. She said her clients have not been demanding access to these ETFs and her firm has so far not taken any steps to add them to their model portfolios. She said the firm will first “test the waters” with their own funds before offering the spot Bitcoin ETFs to clients.
If they do decide to add them, she said the ideal client base for these ETFs is likely to be those with a higher tolerance for risk than the average client, but not so high that they would pursue Bitcoin outside of the ETF.
Andy Stout, chief investment officer of $19 billion RIA Allworth Financial, said his firm is not currently recommending the ETFs to clients, but that may change.
“We still want to see how the ETFs react and how the underlying Bitcoin reacts, as well," Stout said. “Bitcoin’s volatility profile is a lot more aggressive than what most investors are accustomed to and what they expect. For example, in 2022, Bitcoin was down 64%. Last year, it was great; it was up 157%.”
Bitcoin has four times the historical volatility of the S&P 500, he said.
Brian Sokolowski is the founder and principal at Bluebird Wealth Management in Medfield, Mass., which has two advisors, three total employees and $100 million in AUM, said his firm has also not offered these ETFs to their clients, nor is there client demand to do so. Bluebird's client base is mostly people in their 50s and 60s who are nearing retirement he said.
“Some of our younger clients do proactively ask about crypto exposure, but for our main clientele, it’s not top of mind,” he said.
Noah Damsky, the principal with Marina Wealth Advisors in Los Angeles, which has $21 million in AUM, has also held off on offering the ETFs in their portfolios due to a lack of long-term performance history.
“The jury is still out. We haven’t seen it over a full economic cycle,” he said. “We’re not incorporating it yet because we want to see the data. But we think with the new ETFs that are coming out, it’s going to make it much easier to access in a safer way.”
Damsky said they have seen varied amounts of interest in cryptocurrencies from clients over the years, but it's waning as time goes on.
“As Bitcoin has rallied and fallen, like most asset classes, it gains and loses interest as it goes up and down,” he said. “As we’ve had the rallies, folks have asked about it then and with the pullback, they’re forgetting about it. They don’t have as much interest. With the recent rally … they’re getting numb to the volatility of Bitcoin and it’s not as enthralling as it was.”
