Bitcoin ETFs could be a key to unlocking the $30 trillion wealth management sector.
The introduction of Bitcoin ETFs into U.S. public markets has opened the door for major money managers, previously restricted from cryptocurrency, to invest in Bitcoin. This development is particularly significant for the $30 trillion wealth management industry, as analysts from Standard Chartered predict an influx of $50 billion to $100 billion in funds by 2024.
Anthony Pompliano, founder of Pomp Investments, highlights Bitcoin’s emerging status as a benchmark asset, especially among younger investors. He suggests that incorporating this new benchmark into asset allocations may be crucial for investors seeking to match market performance.
Bitcoin’s value experienced a high of $49,000, a peak not seen since December 2021, before settling around $43,000. After a challenging 2022, the cryptocurrency saw a 150% surge in value in 2023.
Many investment professionals, including fiduciaries, financial advisors, and banks, previously avoided crypto due to its unregulated nature. However, the U.S. Securities and Exchange Commission’s recent approval of spot Bitcoin ETFs has changed the landscape, allowing for more conventional investment methods. Despite ongoing cautions from SEC Chair Gary Gensler regarding cryptocurrency investments, market activity has been robust.
Advisors Preferred Trust, for instance, plans to allocate up to 15% of its Hundredfold Select Alternatives Fund in indirect Bitcoin exposure through funds and futures contracts. Passive funds are increasingly seeking performance enhancement methods, as noted by Pompliano.
Bitwise Asset Management, one of the first to receive approval for a Bitcoin product, targets financial advisors and family offices with its Bitwise Bitcoin ETF. Matt Hougan, Chief Investment Officer at Bitwise, notes the growing interest in crypto among advisors, who are now considering allocations between 1% to 5%.
A recent survey conducted by Bitwise and VettaFi revealed that 88% of financial advisors interested in Bitcoin were awaiting an ETF approval. Among those already investing in crypto, significant allocations over 3% of portfolios doubled in 2023 compared to the previous year.
The Bitcoin ETF is viewed as a convenient and cost-effective option for the majority of investors, according to Hougan. Robinhood data shows that 81% of Bitcoin ETF trading volume in its initial week was in individual accounts.
Even before the SEC’s approval, the 2022 CFA Institute Investor Trust Study found that 94% of state and local pension plans had some crypto exposure. The new ETFs offer more legitimacy and potentially lower costs for retirement plans looking to increase their crypto allocations.
Advice on entering the crypto space varies among financial firms. Galaxy Digital, for instance, found the most significant improvement in portfolios when moving from a 0% to 1% Bitcoin allocation. WisdomTree observed that adding Bitcoin to a traditional portfolio of 60% equities and 40% bonds enhanced risk-return profiles, with a 1% allocation leading to an 8.3% outperformance from 2014 to 2019. Fidelity’s analysis through mid-2022 acknowledged Bitcoin’s potential for boosting returns, despite its volatility and uncertain performance as an inflation hedge.
Matt Walsh of Castle Island Ventures, formerly of Fidelity Investments, predicts that funds focusing on high-growth tech stocks will be early adopters of Bitcoin ETFs. He also foresees interest from commodity-based portfolios, likening
Bitcoin to a form of digital gold. This reflects a broader appeal of Bitcoin across different investment strategies, indicating a significant shift in how financial markets perceive and integrate cryptocurrencies.
