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“It’s something I’m looking into because I think I’ll recommend it eventually, but I’m not there yet,” Lee Baker, founder and president of Apex Financial Services in Atlanta, said in an interview. “For myself and other advisors, if we get more history, it increases the likelihood that it will end up in clients’ portfolios.”
CNBC spoke with a dozen members of the CNBC Advisory Board, including Baker, to find out why so many financial planners are still at a disadvantage over Bitcoin and Bitcoin ETFs, and what might cause them to change their minds. It comes down to two main things: time in market and regulatory compliance.
“When (bitcoin) becomes more regulated, you will see greater adoption,” said Ted Jenkin, founder and CEO of oXYGen Financial in Atlanta. “That being said, even if there is no regulation, if over time it can prove to be as stable an asset as a technology company would be – because my view on that is that it’s more about early technology than money – you”ll see more adoptions. »
Most advisors said they don’t initiate conversations or respond to client inquiries about ETFs — and most don’t have more than one client who made an allocation to the funds. Among these advisors, some proactively educate themselves on Bitcoin investing, while others – often those with older, more traditional and conservative clientele – are more dismissive.
Some of these advisors work with younger clients who have a greater appetite for risk and a longer investment horizon. They say their clients were already interested and educated about exposure to cryptocurrencies before this year, and that the arrival of ETFs did not motivate them to get started.
Performance review
At 15 years old, bitcoin is in a maturity phase comparable to that of a teenager: it has great potential but still remains very volatile. Bitcoin is up more than 59% this year, and about 230% from its 2022 low that deepened during the FTX collapse. Over the past three, five, and ten years, the cryptocurrency has gained 85%, 704%, and 10,854%, respectively. It has also suffered several 70% declines over the years, something not all investors have been able to stomach.
Many hope that consistent flows into Bitcoin ETFs over the years can reduce this volatility, but for now it remains a deterrent for some.
“Financial advisors now have a safe, reliable and regulated way to give their clients access (to bitcoin),” said Bradley Klontz, managing director of YMW Advisors in Boulder, Colorado. “I love it…that it’s a tool in our toolbox for customers who want it. I just don’t see, at the moment, most companies recommending it because they don’t recommend any class d ‘assets, nor any particular asset, which has a lot of 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 that “the relatively early stage of Bitcoin ETFs in the financial landscape and the continued volatility associated with bitcoin” are the main factors that keep bitcoin ETFs away from its investment strategies.
Cathy Curtis, founder of Curtis Financial Planning in Oakland, California, said she doesn’t know if Bitcoin will ever be a stable asset class, but would consider adding it to her clients’ portfolios. it showed stable returns over at least 15 years.
“If it turns out to be a real diversification tool when it comes to stocks, for example, maybe,” she said. “The history of this asset has not shown me that.”
Apex Financial’s Baker pointed out that investors have decades of software and tools to show them how a certain percentage of a given bond, ETF or other asset in a portfolio can improve returns or increase volatility, etc.
“As a group, we’re pretty conservative and somewhat risk-averse,” Baker said. “We’re so used to looking at charts and (asking) how this thing performed and in what types of markets — that’s almost how we’re wired.”
With a few more years in the market, investors may be able to do similar modeling with Bitcoin, he added, which will help advisors become familiar with the funds. He also said getting councilors on board was a matter of when, not if.
“At this point… everyone should be convinced that (Bitcoin) is here to stay, (they) just don’t understand certain parameters in the same way as how we can look at and value stocks or bonds” , did he declare. “We just don’t have that support, and that’s another reason why adoption is slow.”
“I suspect adoption will be slow,” he added. “I wholeheartedly believe that we will start to see an uptick or increase in the use of a counselor over the next two to three years.”
Not regulated enough
Even though Bitcoin ETFs now exist in the United States as a regulated investment vehicle, it is still unclear if and when advisors can recommend them, according to Douglas Boneparth, founder and president of Bone Fide Wealth in New York .
“A lot of it still depends on the compliance offices and what the broker-dealers are going to allow, as far as advisors and the offering of ETFs,” he said. “Just because the ETF came out doesn’t mean the floodgates were open or that the ability for them to allocate to it is easy.”
Jenkin said some brokers have approved the purchase of bitcoin ETFs but limit the amount that can be purchased, and other firms do not allow advisors to sell bitcoin ETFs at all.
Some say this is due to crypto’s notorious reputation for fraud, scandal, and crime – a situation that gets a little better every year but has undoubtedly left a scar on the industry. Others point to the industry’s lack of regulation, which increases the risks of consumer complaints, potential lawsuits against brokers and potentially fines from the Financial Industry Regulatory Authority, or FINRA.
“One of the reasons this method is still not popular is that you have big compliance issues within the industry,” Jenkin said. “Many firms are very nervous about the communications financial advisors have with their clients about digital assets, and none of them want to have violations with FINRA.”
“Most brokers mitigate risk,” he added. “They want to empower advisors to do things for clients, but they certainly don’t want the spotlight put on them to take on more risk. That’s why you’re seeing such slow adoption of this approach .”
Building confidence
Bitcoin and its ETFs need more time in the market to gain trust and adoption by big players like Vanguard, which said earlier this year that it had no plans to offer them and would not change no position unless the asset changes to become less important. speculative.
“It’s coming,” Boneparth said of customer confidence. This will come with “more time – moving from the early days to more mature days. We’re coming out of years where exchanges failed – it’s not a failure of Bitcoin, but it muddies the water (and) people’s confidence. “
Until then, the best position advisors can be in is one where they educate their clients, he added.
“Even though Bitcoin ETFs can fundamentally present a less risky and more regulated way to invest in digital assets…the association with Bitcoin still tends to deter (clients),” Dorsainvil said.
Advisors will likely be even more deterred from ether ETFs, given the added complexity of this cryptocurrency’s use cases and functionality. Last week, the Securities and Exchange Commission gave the green light for U.S. exchanges to list spot ether ETFs, which many investors believe will also be successful, but perhaps a fraction of what bitcoin ETFs have benefited from. .
“ETFs have made it very easy for institutions, from pensions to large funds,” Boneparth said. “That’s really where we’re seeing the bulk of the flow going into these Bitcoin ETFs. … It’s still pretty heavy at the retail advisor client level.”