Financial Advisors May Jump on Spot Bitcoin ETFs, If Approved

Cautious by nature, financial advisors generally don’t recommend investing in crypto. That might change.

Jeff_Benjamin
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Wealth Management Editor
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Reviewed by: Lisa Barr
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Edited by: Ron Day

As the SEC inches closer to allowing the first U.S. spot bitcoin ETF, the question remains whether it will be enough to lure financial advisors off the sidelines and onto the cryptocurrency bandwagon.  

“If it represents a small part of a diversified portfolio, then we would possibly recommend it,” said Chris Chen, a financial advisor at Insight Financial Strategists. “But if a client wants a major allocation to bitcoin or any other cryptocurrency, then the answer is no.” 

Even though the Securities and Exchange Commission already allows exchange-traded funds that track bitcoin futures, the idea of one that directly holds the cryptocurrency would be a “game changer,” according to Ric Edelman, founder of Digital Assets Council of Financial Professionals, in Great Falls, Virginia. 

“Advisors have largely not been recommending bitcoin to clients because their compliance departments won’t allow it, but a spot ETF would be no different than any other thematic fund on the market,” he said. Edelman is also a member of the etf.com advisory board. 

According to Edelman’s research, 47% of financial advisors personally own bitcoin, but only 12% are actively recommending it for their clients. Still, he said that 77% of advisors say they will recommend a spot bitcoin ETF to clients. 

“A spot bitcoin ETF eliminates confusion about regulatory issues, because it uses the most popular vehicle in the world,” he said. “Clients are highly familiar with ETFs. They are easy to integrate and charge fees on, and it allows advisors to affectively respond to client inquiries about crypto.” 

Appetite for Spot Bitcoin ETFs 

Jeremy Eppley, financial planner at Silverstone Financial in Owings Mills, Maryland, is the perfect example of what Edelman is talking about. 

“I do think there is an investor appetite for a spot bitcoin ETF; both from institutional and retail investors,” Eppley said. “I advise clients that have high risk tolerances to hold a little bit of crypto exposure as part of their portfolios’ alternatives sleeve.” 

At this point, he is using futures-based funds, including the ProShares Bitcoin Strategy ETF (BITO), but Eppley said he is ready to switch when a spot version becomes available. 

“Particularly, I would be most interested in BlackRock’s or Invesco’s proposed bitcoin ETFs due to their stature as money managers,” he added. 

Some spot bitcoin proponents are claiming victory following the Aug. 29 ruling by the U.S. Court of Appeals for the D.C. Circuit that basically said the SEC is wrong to allow a futures bitcoin ETF but not a spot bitcoin ETF. But even that opens a host of potential outcomes from here, according to Edelman. 

“There’s no guarantee the SEC will say yes to a spot bitcoin ETF,” he said. “They may appeal the court order, they may stall or they could even rescind the bitcoin futures ETF.” 

Spot Bitcoin ETF Hurdle 

Vaughn Kellerman, associate wealth advisor at HCM Wealth Advisors in Cincinnati, views approval of a spot bitcoin ETF as “the next major hurdle that bitcoin will move past to be taken seriously as an asset for both retail and institutional investors.” 

“An ETF will be a great way for retail investors to gain exposure to bitcoin and add the asset into the portfolios at a very low cost,” he noted. “However, it is very important to point out that investing in a bitcoin ETF is not the same as owning bitcoin directly in the same way that a gold ETF doesn't mean investors own any gold outright.”  

“Buying bitcoin directly and taking self-custody will always be the best way to be involved with bitcoin,” Kellerman said. 

Meanwhile, Sean Rawlings, founder of WealthBound Advisors, sees two forces converging to drive assets into bitcoin if a spot ETF is approved. 

“Younger investors already have an appetite for cryptocurrency, and they want exposure whether that is 1% of a portfolio or 10%,” he said. “The hurdle always comes from not knowing exactly how to invest in crypto and not being familiar with the different exchanges you can utilize.”  

“The older generation has very little knowledge about any cryptocurrency exchanges. Their biggest hurdle is understanding how to actually invest in bitcoin,” Rawlings explained. “I believe people would feel more comfortable investing on a well-known exchange.” 

 

Contact Jeff Benjamin at [email protected]  

Jeff Benjamin is the wealth management editor at etf.com, responsible for coverage related to the financial planning industry. This includes writing, hosting podcasts, webinars, video interviews and presenting at in-person events.


Jeff is a veteran journalist with more than 30 years’ experience covering the financial markets. He has won more than two dozen national and regional awards for his reporting. He most recently worked as a senior columnist at InvestmentNews where he wrote about investment products and strategies, as well as the broader financial planning industry. Prior to that, Jeff worked as an analyst at Cerulli Associates where he researched and wrote reports on the alternative investments industry. Jeff also worked as a money management reporter at Dow Jones Newswires, where he covered the mutual fund industry.


Based in North Carolina, Jeff is a former Marine and has a bachelor’s degree in journalism from Central Michigan University.