Raising Curious Clients’ IQs About Bitcoin ETFs

Regardless of an advisor’s personal opinions about spot bitcoin ETFs, clients inevitably will ask about it.

In fact, they may ask a lot. Because when I checked my screen today, it showed bitcoin at nearly $61,000.

This is when the clients who never ask about anything ask, “why don’t I own bitcoin?” or “should I own bitcoin.”

The biggest cryptocurrency is up a lot—44% this year alone—so the advisor must strike a careful balance. 

On one hand, the advisor may assess that the client is falling prey to the classic “shiny object” syndrome. That is, they are enamored with cryptocurrency simply because they have seen it go up in price, while conveniently forgetting the breathtaking price drops. 

In that case, the advisor must essentially play “defense” in protecting the client from themselves. But how do they do that without offending the lifeblood of their practice and in turn their own livelihood? 

Bitcoin ETFs and Position Sizing 

One consideration is to coach them on the key portfolio management factor of “position sizing.” Realistically, there is no such thing as a “bad investment.” Any investment can go south, but there’s a big difference between that impacting 20% of your portfolio, 5% or 1%.  

Dollar cost averaging is well known to any advisor and probably to many clients. If you disagree with a client’s hunger to own a volatile asset like bitcoin, especially if you think it is for the wrong reasons, a happy medium may be to focus the discussion on how much to start with instead of how much they can make. Clients have by now heard forecasts saying bitcoin might reach $100,000 this year.

Another angle is to explain that we still don’t know how much Bitcoin’s price trend is just an extrapolation of a “risk on” or “risk off” mood in the general stock market. For instance, I ran a chart of the ProShares Bitcoin Strategy ETF (BITO), the first US-listed Bitcoin futures tracking security in ETF form, which of course has been joined by a dozen spot Bitcoin ETFs this year.  

I overlayed BITO’s price path since the start of 2022, versus the ProShares Ultra QQQ ETF (QLD) a levered version of the giant Invesco QQQ Trust ETF (QQQ). I suggest advisors try this themselves. Because when you do, you get the idea that they move together.

Is Bitcoin’s Bull Market Only as Good as QQQ’s? 

That begs the question, will Bitcoin be able to rise in price sustainably and consistently when the Nasdaq 100 runs out of gas in this market cycle? Putting that healthy bit of doubt in a client’s mind is one of the most fiduciary-friendly things an advisor can do. Challenging them to think beyond what their buddies and family members may be bragging about is part of the consultative process. 

Converting potential FOMO (fear of missing out) into a balanced perspective on any trending investment topic, is how advisors continue reminding clients why they are better off with them than without them.