Some Advisors Not Biting With ‘BITO’

Andrew Hambleton        Conner Boillat
Telemus Capital                LVW Advisors

Last week’s launch of the first U.S. bitcoin futures ETF, the ProShares Bitcoin Strategy ETF (BITO), was the most successful launch in ETF history. BITO attracted $1 billion in assets under management in just two days of trading.

In spite of the fund’s popularity, data from VandaTrack has shown that retail investors are mostly staying away. VandaTrack analysts Ben Onatibia and Giacomo Pierantoni said they believe the intense trading action was generated by advisors, private banking clients and shorts using the ETF to profit off the contango situation.

However, ETF.com spoke to two advisors who track digital currency topics and are hesitant to invest in bitcoin futures ETFs in spite of a growing share of clients becoming interested in cryptocurrency.

Andrew Hambleton is a financial advisor at Telemus Capital and is based in Chicago. Conner Boillat is a private wealth advisor with LVW Advisors and is based in Pittsford, New York.

Their answers have been edited for brevity and clarity.

ETF.com: What percent of your current clients are interested in cryptocurrency?

Andrew Hambleton:  About 20-25% of my clients are interested or want to speak about cryptocurrency. This figure was much lower in the beginning of the year, probably 5%. In May, it ramped back up to 15%, but now with the noise of ETFs entering the space, it’s climbed once again.

Conner Boillat: Roughly 10-15% of clients I work with have expressed interest or asked questions regarding digital assets over the past several years.

ETF.com: Have you added, or do you plan to add, BITO into client portfolios?

Hambleton: I haven’t added and have no plans to add BITO in client portfolios. I’m open to clients who would request this position be added, but don’t have a strong desire to get into this specific ETF.

Given the SEC’s approval of a futures-based ETF, there is a decent probability that a physically backed ETF will come to the market soon. I’d be more inclined to suggest that type of product.

That said, these products are very risky, massively volatile and would never give perfect exposure to actual cryptocurrencies  that are trading 24/7.

Boillat: We have no current plans to allocate to BITO. When considering digital assets, we’d evaluate opportunities to own bitcoin through a vehicle that provides custody and cold storage of the digital asset, a longer term holding period but also daily liquidity, and where the client actually owns the digital asset, not a futures-linked product.

ETF.com: Do clients have any concerns about using a futures ETF rather than a physically backed one?

Hambleton: The clients interested in the space are more excited that something is on the market. They weren’t as worried about it being a futures ETF as much as they were excited for what this means by way of having a physically backed ETF getting approved.

Boillat: Futures ETFs require education. Even sophisticated investment professionals may fail to grasp the issues that contango and negative contract roll pose to a futures-based ETF.

While an ETF such as BITO may move directionally in tandem with bitcoin over short periods, the magnitude will likely be affected by negative roll yield over long periods, and in our view should not be used for long term holding periods.

This is because of the negative roll yield associated with investing in the current-month futures contracts with a market in contango, where the short/front-month contract price is lower than the long end/longer-dated contract price.

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