Advisors Can’t Ignore Spot Bitcoin ETF

Across the wealth management landscape financial advisors have generally remained lukewarm on the topic of investing in cryptocurrencies for themselves or on behalf of their clients. 

But with nine separate applications pending approval by the Securities and Exchange Commission for the first spot bitcoin ETF, there is fresh hope advisors will get on board the crypto bandwagon. 

“I believe there will be significant demand for spot bitcoin ETFs, but that’s not to say it won’t be a controversial topic,” said Nate Geraci, president of The ETF Store. 

Acknowledging the way a lot of financial advisors have maintained an arm’s-length approach to bitcoin since it first came onto the scene 14 years ago, Geraci compares the polarizing effects to investing in gold. 

“There’s a growing camp of advisors who view bitcoin as digital gold and believe it can offer meaningful portfolio diversification benefits,” he added. “There’s obviously another camp of advisors who view bitcoin as vaporware. That’s no different than gold, where some view it as a worthy portfolio addition, and others view it as a worthless rock.” 

Will SEC Approve a Spot Bitcoin ETF? 

With the SEC moving closer to a ruling on the stack of spot bitcoin ETF applications that have rolled in since BlackRock Inc. filed in June, advisors might soon be forced to confront their reluctance when it comes to adding crypto to client portfolios. 

Ric Edelman, founder of the Digital Assets Council of Financial Professionals, believes there is a better than 50% chance one or more spot bitcoin ETFs will be approved by March. But he isn’t expecting any approvals before October. 

“There’s speculation that the SEC will lump all the applications together and approve or reject all of them at once,” he said.  

After 10 years of watching the regulator give a thumbs down to the spot bitcoin applications, Edelman is reading the tea leaves and believes an approval is near. From his perspective, most of the regulator’s objectives related to things like fraud, custody and transparency have been addressed. The final snag relates to setting the net asset value of something that trades globally around the clock using multiple exchanges and custodians. 

“The SEC has asked how an ETF can set NAV when they don’t know the price,” Edelman noted. “The new applications are surveilling the market and relying on well-established custodians to legitimize the price they’re going to post.” 

Financial Advisors Weigh in on Spot Bitcoin ETF 

Edelman said the other reason for the “widespread optimism that the SEC will accept this methodology,” is because the world’s largest asset manager and dominant ETF provider threw its big hat into the ring. 

“An issuer of BlackRock’s stature will give the SEC a high degree of comfort,” he said. “I’m not aware of any BlackRock application ever being denied. Why would BlackRock file if they didn’t feel a strong chance of being approved?” 

In terms of the potential appetite from financial advisors, Edelman believes a spot bitcoin ETF that expands access beyond futures-based products and various forms of direct crypto ownership will be difficult to ignore. 

“At this point, half of all financial advisors personally own bitcoin, but only 12% of all advisors are recommending cryptocurrencies to their clients,” he said. “But 77% of advisors say they will recommend bitcoin when a spot bitcoin ETF is available because that will eliminate the regulatory uncertainty and provide access to bitcoin in a vehicle that everyone is familiar with.” 

Even the naysayers are perking up at the notion of neatly packaged crypto exposure. 

“As a conservative rep, I would likely not recommend bitcoin; however, there are clients asking for it occasionally, and an ETF proxy would be really handy,” said Tim Holsworth, president of AHP Financial Services. 

Contact Jeff Benjamin at [email protected]