The launch of bitcoin exchange-traded funds in January has caught the attention of financial advisors, although their adoption has been slow, as noted by Samara Cohen from BlackRock.
Currently, approximately 80% of bitcoin ETF purchases are believed to be made by “self-directed investors who have independently allocated funds, mainly through online brokerage accounts,” she mentioned during the Coinbase State of Crypto Summit in New York City. One of the funds introduced earlier this year was the iShares Bitcoin Trust (IBIT).
Cohen, the chief investment officer of ETF and index investments at BlackRock, highlighted that hedge funds and brokerages have also shown interest, according to the 13-F filings from the last quarter, while registered investment advisors have approached with caution.
Recently, CNBC surveyed its Advisor Council to understand the reasons behind the hesitance of advisors and their peers towards these new products, which present a regulated and well-known investment avenue for a new asset class that has attracted significant attention in recent years. Responses varied from concerns about bitcoin’s price volatility to the cryptocurrency being relatively new without an established track record.
Regulatory compliance and the crypto market’s tarnished reputation for fraud and scandals were additional factors weighing on the minds of advisors.
Referring to the cautious attitude of financial advisors, Cohen described them as being skeptical by nature.
“Investment advisors have a fiduciary responsibility to their clients,” she added. “Considering the historical price fluctuations of this asset class, which has seen 90% volatility at times, their primary role is to build portfolios, conduct risk analyses, and due diligence – tasks they are currently engaged in.”
“This is a pivotal moment for presenting crucial data, risk analytics, and determining the potential role of bitcoin in a portfolio, along with the appropriate allocation based on an investor’s risk tolerance and liquidity requirements,” she explained. “This is the essence of an advisor’s role, and the path we are on is the right one, with advisors fulfilling their duties.”
Cohen viewed bitcoin ETFs as a connection between the cryptocurrency and traditional finance, especially catering to investors interested in bitcoin allocation without managing risks in two separate ecosystems. She mentioned that before the advent of ETFs, the existing entry points into crypto were inadequate for certain investors’ needs.
Alesia Haas, the chief financial officer at Coinbase, remarked that bitcoin is gradually gaining acceptance, a sentiment echoed throughout the conference sessions.
T. Rowe Price’s head of digital assets strategy, Blue Macellari, highlighted the notion of a 1% allocation that some investors find safe and comfortable. She viewed portfolio allocations into bitcoin as binary outcomes – either greater than 1% or zero – while acknowledging the cautious approach to adoption.
“There’s a psychological aspect where individuals need to dip their toes in and feel at ease,” Macellari explained. “It’s a shift in mindset that requires time for people to adapt.”