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In January, the Securities and Exchange Commission approved 11 spot bitcoin exchange-traded funds, which track the value of the cryptocurrency.
Popular stock-trading platforms now allow customers to trade the product, but navigating these new ETFs can be overwhelming for many investors. This recent development could lead to more questions and concerns among financial advisors as they approach this newer investment strategy with their clients.
Since the SEC’s approval of spot ETFs, the value of bitcoin and bitcoin ETFs as investments have faced increased scrutiny. SEC Chair Gary Gensler emphasized in his written announcement of the decision that the commission’s hand had been forced by a court ruling the SEC lost to crypto asset manager Grayscale following its application for a spot bitcoin ETF.
“Bitcoin is primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing,” Gensler wrote. “While we approved the listing and trading of certain spot bitcoin ETF shares today, we did not approve or endorse bitcoin.”
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Kashif Ahmed, CFP and president of American Private Wealth in Bedford, Massachusetts, does not recommend his clients gain exposure to bitcoin ETFs.
“The SEC’s statement says all that any investor needs to know,” he recently told Financial Planning. “Just because the SEC has allowed ETFs in bitcoin to be launched doesn’t mean they necessarily make sense in a portfolio.”
Other advisors stress the risk of cryptocurrency to clients, likening it to gambling. Brett Bernstein, the CEO and co-founder of XML Financial Group, asks his crypto-curious clients, “If you were to go with me to Las Vegas for the weekend, how much would you be willing to put on one number and one color at the roulette wheel?”
In recent years, bitcoin, the most widely known cryptocurrency, has seen its price rise as high as $74,000 and fall below $12,000. Its value increased by 160% in 2023 amid widespread expectation that the SEC would approve bitcoin ETFs. Such fluctuation is reason enough for many advisors to be skeptical.
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Still, these 11 new bitcoin ETFs quickly proved popular to investors, drawing in about $4 billion within a week of their approval in January. Lori Van Dusen, the CEO and founder of LVW Advisors in Rochester, New York, said her clients have taken note of the new opportunity.
Van Dusen told Financial Planning that even some of the large and midsized institutional investors her firm works with are curious about digital assets after previously having “zero interest in even talking about this.”
She noted that some of her clients — who tend to be high net worth and ultrahigh net worth — like to buy gold as a hedge against the possibility that the U.S. dollar will plummet in value amid ballooning federal deficits. Some now think bitcoin and other digital assets can serve a similar purpose. Other clients of Van Dusen look at cryptocurrencies as offering them an opportunity to be a venture investor supporting one of the next great leaps in technological innovation.
Read on for stories that can help you juggle clients’ enthusiasm or hesitancy when it comes to the new spot bitcoin ETFs and to more traditional ETFs.
