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Now that Bitcoin ETFs are traded on US public markets, many large money managers who have effectively been locked out of crypto finally have a way to access the primary digital currency.
For the $30 trillion wealth management industry, the floodgates are about to open. Analysts at Standard Chartered estimate fund inflows to be between $50 billion and $100 billion in 2024.
“Bitcoin is starting to become a benchmark asset for the younger generation,” said Anthony Pompliano, founder of Pomp Investments. “We know most investors can’t beat a benchmark, so adding a new benchmark to their asset allocation is the only way to keep up.”
Bitcoin hit a high of $49,000 on Thursday, a level not seen since December 2021, before falling to around $43,000 on Friday. It surged 150% last year after a massive selloff in 2022.
A large part of the investment world missed the 2023 rally. According to vanek CEO Jan van Eck, many fiduciaries, financial advisors and banks have been explicitly told in the past to “don’t touch crypto”, largely because of its unregulated nature.
That changed on Wednesday after the Securities and Exchange Commission approved the sale of a spot Bitcoin ETF, allowing investors to access Bitcoin in the same way they buy stock and bond index funds. SEC Chairman Gary Gensler continues to issue stern warnings when it comes to crypto investing, but that doesn’t seem to be slowing down the activity.
For its Hundredfold Select Alternative Fund, the mutual fund manager is allocating up to 15% of total assets to indirect Bitcoin exposure through the Advisors Preferred Trust Fund and futures contracts, according to a recent prospectus.
“Most passive funds are looking for ways to increase performance,” says Pompliano.
Bitwise Asset Management is one of 11 issuers that were given initial approval for a Bitcoin product. Chief Investment Officer Matt Haugen said the Bitwise Bitcoin ETF, which is offering the lowest fees on 0.2% of holdings, is primarily targeting financial advisors and family offices.
,This also includes RIAs [registered investment advisors] And that includes, ultimately, the wirehouses — it’s a multi-trillion dollar market,” Haugan said, adding that advisors are “increasingly building” an allocation of 1% to 5%. “We know they’re interested in crypto. And let us know that they are waiting for the ETF.”
In a recent survey of financial advisors conducted in collaboration with data-driven ETF platform Vettafy, Bitwise found that 88% of advisors interested in buying Bitcoin were waiting until a spot Bitcoin ETF was approved. Among advisors who already invest in crypto, large allocations (more than 3% of the portfolio) more than doubled to 47% in 2023 compared to last year.
“For most people, a low-cost Bitcoin ETF will be the easiest way to do this,” Hogan said.
According to the data of Robin Hood81% of Bitcoin ETF trading volume in the first week was in individual accounts, with the rest in retirement accounts.
Even before the SEC’s announcement on Wednesday, the 2022 CFA Institute Investor Trust Study found that 94% of state and local pension plans had some crypto exposure. The new products potentially offer greater validity and lower costs for retirement plans that want to increase allocations.
Financial companies are offering varying advice on how best to enter this field.
In a report on its website in October, Galaxy Digital said the “strongest marginal improvement” occurred when the portfolio shifted from a 0% to a 1% Bitcoin allocation. By 2019, WisdomTree had stated that adding Bitcoin to a portfolio traditionally composed of 60% equities and 40% bonds “could improve the risk-return profile” and that from 2014 to 2019 “even a one percent allocation “Due to outperformance of 8.3% versus the base portfolio.”
Fidelity analyzed performance through mid-2022 and noted that “Bitcoin has boosted portfolio returns during specific periods in the past, although this also came with substantial volatility.” To date, the firm said, Bitcoin has not been good as a hedge against inflation, but it acknowledged that “this was challenging to assess, given that inflation has been low for most of Bitcoin’s history.”
Castle Island Ventures founder Matt Walsh, who previously led several Fidelity Investments blockchain and cryptoasset initiatives, said the types of funds that might jump into the market quickly would be those focusing on high-growth tech stocks. But he also sees broader appeal.
“I think you can also see this in commodity-based portfolios, like gold-based funds that see it as a kind of digital gold,” Walsh said.
Watch: SEC approves Bitcoin ETF
