Investors Love Crypto ETFs. Advisors Aren't Buying It

Despite the success of spot bitcoin ETFs, advisors remain hesitant about crypto in general and continue to apply fundamental research to this unorthodox asset class.

TwitterTwitterTwitter
Jeff_Benjamin
|
Wealth Management Editor
|
Reviewed by: Paul Curcio
,
Edited by: Kiran Aditham

This article is the first of a weekly series in February highlighting the growing influence and popularity of cryptocurrency-based ETFs.

2024 may have been the biggest year for crypto so far: The spot price of bitcoin more than doubled and a crypto-based fund was the most popular ETF debut of all time. Still, financial advisors are reluctant to venture into the category.

While the demand for crypto investing appears strong, illustrated by inflows to the $59 billion iShare Bitcoin Trust ETF (IBIT), most advisors can’t help but apply basic investing fundamentals to the space.

Meanwhile, the push toward crypto investing, boosted in July by the approval of Ethereum exchange-traded funds, is now riding a fresh wave of support from the Trump administration, which puts more pressure on skeptical financial advisors.

“While Trump is clearly in favor of crypto, the fundamentals remain unchanged,” said Noah Damsky, principal at Marina Wealth Advisors in Los Angeles.

“I don't see a fundamental use case for crypto and pricing is simply speculation,” he added. “I wouldn't buy it, and I am not including [it] in client portfolios.”

Daniel Lehrman, owner of Masuda Lehrman Wealth in Honolulu, Hawaii, acknowledges the growing interest in crypto among his clients but said he continues to advise extreme caution.

“Many clients, even those who self-identify as having a low risk tolerance, have started asking about cryptocurrencies, particularly crypto ETFs as they continue to gain popularity,” he said. “Financial advisors like myself are responding with cautious optimism and educating our clients on the unique risks associated with crypto, often recommending limiting exposure to a very small percentage of their overall portfolio.”

Keeping Crypto ETFs at Arm’s Length

Sarah Maitre, founder of Camriel Advisors in Mt. Shasta, California, recognizes the growing appeal of crypto investing, but also can’t help seeing the risks.

“Crypto is an asset class that has exploded in popularity in recent years, however, some of the attributes that make it so popular, such as rapid transaction speeds and decentralization, are also attributes that make it a risky investment when purchased directly,” she said. “Due to the high speed of transactions on the blockchain, it’s quick to transfer crypto, but this can also be a risk as it’s possible for bad actors to wipe out investors’ wallets without financial institutions and investigators being able to trace the owner of the new wallet the crypto ends up in.”

Maitre adds that the examples of theft and corruption in the cryptocurrency space represent her biggest concerns when it comes to advising clients to invest in crypto.

“There are many stories I’ve heard of investors having this happen with great difficulty in ever recovering assets,” she noted. “With crypto ETFs now in play through traditional brokerages, I feel more comfortable with my clients purchasing this asset class through ETFs, but only as a small allocation of a well-diversified portfolio."

Building a Buffer

Still, at least one ETF issuer aims to carve a niche in this band of reluctant crypto investors and advisors.

In January, Calamos Investments launched the Calamos Bitcoin Structure Alt Protection ETF (CBOJ) as a buffered strategy, offering 100% downside protection in exchange for an upside performance cap of 11.6% for investors holding the ETF for the entire 12-month duration.

CBOJ, which joins the popular buffered ETF category, will be followed this week by similar ETFs from Calamos offering 80% downside protection in exchange for a 50% to 55% performance cap, and an ETF offering 90% downside protection in exchange for a cap in the 30% range.

“The majority of people have not yet invested in crypto because it’s a wildly volatile asset,” said Matt Kaufman, Head of ETFs at Calamos.

CBOJ attracted $40 million during its first week of trading and Kaufman believes the buffered bitcoin ETFs will appeal to advisors and institutional investors “that don’t want to take the balance sheet risks.”

The fact that the Calamos ETFs reduce the volatility of one of the most volatile assets is a bonus, said Kaufman. “It opens the whole portfolio. With the guardrails, you have an opportunity to take from anywhere to invest in crypto.”

Time will tell if bitcoin buffers are the ultimate entry point for reluctant financial advisors, or if the pressure and democratization will ultimately drag advisors onto the bandwagon.

Jirayr Kembikian, co-founder of Citrine Capital Advisors in San Francisco, believes the momentum is shifting toward the latter.

“The temperature around bitcoin is higher than ever for both advisors and clients,” he said. “More people are asking about it, and unlike in previous cycles, there’s a noticeable shift toward curiosity and education rather than outright dismissal.”

In terms of advisors that have “brushed off crypto,” Kembikian said, “they are taking a closer look, and clients are increasingly interested in how it fits into a diversified portfolio.”

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.

Loading