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Despite the SEC’s landmark approval of spot Bitcoin ETFs in January, most financial advisors are still figuring out how these new instruments will fit into their client portfolios, according to Samara Cohen, Chief Investment Officer of ETFs and Index Investments at BlackRock.
Cohen said currently, the main buyers of spot Bitcoin ETFs are “self-directed investors” who manage their own investments through online brokerage accounts. Institutional investors like hedge funds and brokerages are also participating, but registered investment advisors (RIAs) are adopting with caution.
The bottom line is Bitcoin’s historical price volatility, its lack of a long-term track record, and clients’ risk tolerance, Cohen noted. As RIAs, their role is to be particularly diligent in risk assessment and portfolio construction, which includes understanding and evaluating new asset classes like Bitcoin.
“This is a moment, in terms of really putting forward important data, risk analytics [and determining] the role [Bitcoin] can play in a portfolio, what sort of allocation is appropriate given an investor’s risk tolerance, their liquidity needs,” said Cohen at Coinbase’s State of Crypto Summit this week.
“That’s what an advisor is supposed to do, so I think this journey that we’re on is exactly the right one and they’re doing their jobs,” she added.
For investors willing to allocate to Bitcoin without having to manage risks across two different ecosystems, spot Bitcoin ETFs are a bridge between crypto and traditional finance, according to Cohen. There were no good onramps into crypto before the ETFs, she said.
Based on last quarter’s 13F filings, US spot Bitcoin ETFs attracted 937 professional firms in Q1 2024. Among the major institutions that hold Bitcoin ETF shares are Millennium Management, Morgan Stanley, JPMorgan, UBS, Wells Fargo, and the State of Wisconsin Investment Board, to name a few.
Bitcoin adoption could be key to keeping future clients
Financial advisors with a traditional, conservative client base remain hesitant or even avoid recommending Bitcoin ETFs to their clients.
Neither the firm nor its clients have requested these ETFs, says Brian Sokolowski, founder and principal of Bluebird Wealth Management in Medfield, Mass. According to him, his company’s clients are mostly seniors in their 50s and 60s who are nearing retirement.
“Some of our younger clients do proactively ask about crypto exposure, but for our main clientele, it’s not top of mind,” said Sokolowski.
However, the trend may shift over time as younger generations influence Bitcoin’s acceptance and financial institutions recognize its potential for attracting future clients. Intergenerational wealth transfer is among the factors that could lead to wider Bitcoin adoption among older individuals.
Steve Cohen, the billionaire founder of hedge fund Point72 Asset Management, said in an interview with CNBC in April that he owned a little bit of Bitcoin because of his son.
Bitcoin adoption is happening, but it is “a slow journey,” according to Coinbase’s Chief Financial Officer, Alesia Haas.
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