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“It’s something I’m researching because I think eventually I will recommend it, I’m just not there yet,” Lee Baker, founder and president of Apex Financial Services in Atlanta, said in an interview. “For myself and other advisors, if we get more of a track record, it increases the likelihood that it ends up in the client portfolios.”
CNBC spoke with a dozen members of CNBC’s Advisor Council, which includes Baker, to learn why so many financial planners are still down on bitcoin and bitcoin ETFs, and what could cause them to change their tune. It comes down to two main things: time in the market and regulatory compliance.
“When [bitcoin] gets more regulated, you will see more adoption,” said Ted Jenkin, founder and CEO of oXYGen Financial in Atlanta. “That being said, even if there isn’t regulation, if over time this can prove to be as stable of an asset as a technology firm would be — because my viewpoint on this is it’s early technology more than it is money — you’ll see more adoption.”
Most of the advisors said they’re neither initiating conversations nor fielding client inquiries about the ETFs – and most don’t have more than one client who has made an allocation to the funds. Of those advisors, some are proactively educating themselves about bitcoin investing, while others — often those with an older, more traditional and conservative client base — are more dismissive.
Some of these advisors work with younger clients who have a greater appetite for risk and a longer investment time horizon. They say that their clients were already interested and educated in crypto exposure before this year, and that the arrival of ETFs hasn’t motivated them to jump in.
Performance review
At 15 years old, bitcoin is in a maturity phase comparable to that of a teenager — it has big potential but still comes with a lot of volatility. Bitcoin is up more than 59% this year, and about 230% from its 2022 low that deepened during the collapse of FTX. In the past three, five and 10 years the cryptocurrency has gained 85%, 704% and 10,854%, respectively. It’s also suffered several 70% drawdowns over the years, which not all investors could stomach.
Many hope consistent flows into bitcoin ETFs over the years can lower that volatility, but for now, it’s still a deterrent for some.
“Financial advisors now have a way to give clients access [to bitcoin] that’s safe, reliable and regulated,” said Bradley Klontz, managing principal of YMW Advisors in Boulder, Colorado. “I love it … that it’s a tool in our toolbox for clients who want it. I just don’t see, right now, most firms recommending it because they’re not recommending any asset class, or any particular asset, that has that much volatility.”
Rianka Dorsainvil, co-founder and co-CEO of 2050 Wealth Partners, said that most of her clients prioritize stability and long-term growth over high-risk opportunities, and that the “relatively early stage of bitcoin ETFs in the financial landscape and the ongoing volatility associated with bitcoin” are primary factors keeping bitcoin ETFs out of her investment strategies.
Cathy Curtis, founder of Curtis Financial Planning in Oakland, California, said that she doesn’t know if bitcoin will ever be a stable asset class but that she would consider adding it to client portfolios if it showed stable returns over at least 15 years.
“If it proved itself to be a true diversifier along equities, for example, maybe,” she said. “The history of that asset has not shown me that.”
Apex Financial’s Baker pointed out that investors have decades of software and tools to show them how a certain percentage of a given bond, ETF or other asset in a portfolio might enhance returns or increase volatility and more.
“As a group, we’re fairly conservative and somewhat risk averse,” Baker said. “We are so accustomed to pulling up charts and [asking] how did this thing perform and through what kinds of markets — it’s almost the way we’re wired.”
With a few more years on the market, investors may be able to do similar modeling with bitcoin, he added, which will help advisors warm to the funds. He also said advisors’ embrace is a matter of when and not if.
“At this juncture … everybody should be convinced that [bitcoin’s] here to stay, [they’re] just not understanding some of the metrics in similar terms to how we can look at and value stocks or bonds,” he said. “We just don’t have that underpinning, and that’s an additional reason why the uptake is slow.”
“My guess would be it will be a slow adoption,” he added. “I wholeheartedly believe we will begin to see an uptick or increase in an advisor use somewhere in the next two to three years.”
Not regulated enough
Even though bitcoin ETFs exist in the U.S. now as a regulated investment vehicle, it still isn’t always clear if or when advisors can recommend them, according to Douglas Boneparth, founder and president of Bone Fide Wealth in New York City.
“A lot of this still has to do with compliance offices and what broker-dealer is going to allow what when it comes to advisors and offering ETFs,” he said. “Just because the ETF came out doesn’t mean the floodgates were open or that the ability for them to allocate to it is easy.”
Jenkin said some broker-dealers have approved the purchase of bitcoin ETFs, but restrict how much of it can be bought, and other firms don’t allow advisors to sell bitcoin ETFs at all.
Some say that’s due to crypto’s notorious reputation for fraud, scandal and crime — a situation that gets cleaned up a little bit more every year but no doubt has left a scar on the industry. More point to the industry’s lack of regulation, which increases the chances of consumer complaints, potential lawsuits against broker-dealers and potentially fines from the Financial Industry Regulatory Authority, or FINRA.
“Part of why this still isn’t popular is you’ve got heavy-duty compliance issues within the industry,” Jenkin said. “A lot of firms are very nervous about the communications that financial advisors are having with their clients on digital assets, and none of them want to have violations with FINRA.”
“Most broker-dealers are risk mitigators,” he added. “They want to allow advisors to do things for clients, but they certainly don’t want to have a spotlight shined on them to carry more risk. That’s why you’re seeing there’s such a slow uptake on this.”
Building confidence
Bitcoin and its ETFs need more time in the market to gain trust and adoption by big players like Vanguard, which famously said earlier this year that it doesn’t plan to offer them and won’t shift its stance unless the asset changes to become less speculative.
“That’s coming,” Boneparth said of client confidence. It’ll come with “more time — getting out of the early days into more of the mature days. We’re coming off of years where exchanges have failed – that’s not Bitcoin failing, but it muddies the water [and] people’s trust.”
Until then, the best position advisors can be in is one where they educate their clients, he added.
“Even though bitcoin ETFs fundamentally may present a less risky and more regulated way to invest in digital assets … the association with bitcoin still tends to deter [clients],” Dorsainvil said.
Advisors are likely to be even more deterred by ether ETFs, given the additional complexity of that cryptocurrency’s use cases and functionality. Last week the Securities and Exchange Commission gave U.S. exchanges the green light to list spot ether ETFs, which many investors predict will also have success, but perhaps a fraction of what bitcoin ETFs have enjoyed.
“The ETFs have made it very easy for institutions, from pensions to large funds,” Boneparth said. “That’s really where we’re seeing the bulk of the flows going into these bitcoin ETFs. … It’s still pretty cumbersome at the retail advisor client level.”
