Bitcoin exchange traded funds (ETFs) have finally launched in January, and financial advisors are slowly starting to adopt them, as per insights shared by BlackRock’s Samara Cohen. Currently, about 80% of bitcoin ETF purchases are believed to be made by self-directed investors who have allocated funds through online brokerage accounts. The iShares Bitcoin Trust (IBIT) was one of the first funds to be introduced earlier this year.
Cohen, who serves as BlackRock’s chief investment officer of ETF and index investments, mentioned that hedge funds and brokerages have also shown interest in these ETFs based on the 13-F filings from the last quarter. However, registered investment advisors have been more cautious in their approach towards these new products.
CNBC conducted a poll among its Advisor Council to understand the reasons behind this cautious behavior. Responses highlighted concerns regarding bitcoin’s price volatility, the cryptocurrency’s relatively short track record, regulatory compliance issues, and its association with fraud and scandals.
According to Cohen, financial advisors are rightfully wary due to their role as fiduciaries to their clients. Given bitcoin’s history of extreme price swings, advisors are focused on conducting thorough risk analysis and due diligence to ensure that they construct portfolios that align with their clients’ investment objectives and risk tolerance levels.
She emphasized the importance of advisors in evaluating the role of bitcoin in a portfolio, determining the appropriate allocation based on individual investor profiles, and managing liquidity requirements. Cohen sees bitcoin ETFs as a crucial link between the cryptocurrency space and traditional finance, offering investors a convenient way to gain exposure to bitcoin without navigating two separate ecosystems.
Alesia Haas, the CFO of Coinbase, described bitcoin’s adoption as a gradual process, echoing sentiments shared during the State of Crypto Summit. Blue Macellari from T. Rowe Price highlighted the trend of some investors considering a 1% allocation to bitcoin as a safe starting point. She viewed portfolio allocations into bitcoin as binary decisions, suggesting that investors either allocate more than 1% or none at all, emphasizing the need for a cautious approach to adoption.
In conclusion, the journey towards embracing bitcoin ETFs is unfolding slowly but steadily, with financial advisors playing a crucial role in guiding their clients through this transition. As the cryptocurrency market continues to evolve, advisors are focused on conducting comprehensive analyses to ensure that bitcoin investments align with their clients’ financial goals and risk profiles. The cautious approach towards adoption reflects the need for thorough research and evaluation before integrating these new investment products into portfolios.