Exciting New Bitcoin Funds Have Not Yet Debuted
Since launching in January, Bitcoin exchange-traded funds have attracted billions of dollars from investors. However, the funds’ target market—financial advisors who manage trillions of dollars in client assets—has gone mostly untapped.
Supporters of the biggest cryptocurrency in the world were hoping that the bitcoin funds will attract a slew of new investors, particularly the 30 trillion dollars in client assets managed by financial advisors in the United States.
However, private investors seem to have been the primary force behind most of the purchases made thus far. Even critics can’t tell if those buyers are crypto newbies or just moving their bitcoin from more expensive goods and exchanges to ETFs because of how straightforward and cheap they are to use.
Since they began trading on January 11, nine new “spot” bitcoin ETFs have received almost $20 billion from investors, while the Grayscale Bitcoin Trust, which also changed into an ETF that day, lost over $10 billion. Out of the 10 funds, the Grayscale fund has the highest fee at 1.5 percent, while BlackRock’s popular ETF charges only 0.2 percent after waiving the first year’s fee.
At this time, the bitcoin funds are inaccessible to registered investment advisers, notwithstanding their clout in allocating funds to exchange-traded funds (ETFs). These funds are exclusively available through the unsolicited platforms of Morgan Stanley, Merrill Lynch, UBS, and Wells Fargo’s wealth management services; advisors are not allowed to actively promote them to customers, but they can be offered to individuals who specifically request them.
One brokerage that has been investigating the funds and considering adding them to its platform is Morgan Stanley, according to sources familiar with the situation.
When it comes to approving and allocating their clients’ funds to spot bitcoin ETFs, wealth platforms and financial advisers run the danger of legal trouble and damage to their reputations, according to some analysts. In its brief existence, Bitcoin has experienced both exhilarating bull runs and catastrophic crashes. Bitcoin fell approximately 70% in the year following its previous high in November 2021.
“Some clients might view allowing products on a platform as some sort of stamp of approval,” warned Matt Apkarian, associate director of product development at research firm Cerulli Associates, regarding the potential reputational damage that could occur if bitcoin were to crash and go towards zero. It certainly makes advisers more vulnerable to legal action.
Investment advisors who take a flat rate have a fiduciary duty to their clients that says they must put their money where their mouth is and put their clients’ interests ahead of their own. Additionally, the Securities and Exchange Commission’s Regulation Best Interest requires commission-based brokers to minimize conflicts of interest when advising clients on investments.
Spot bitcoin exchange-traded funds have been approved, but SEC Chair Gary Gensler has warned investors to be wary of bitcoin and other crypto-related products. At the same time, the Labor Department is worried about people placing cryptocurrency into retirement plans.
According to MarketCounsel Consulting president and chief executive Brian Hamburger, it’s not only the regulations that influence corporate behavior; the regulator’s posture has a significant role as well. I believe that’s another reason why companies are wary of incorporating more cryptocurrency into these retirement plans.
Since banks are shielded from substantial liability by merely making the goods accessible for purchase on self-directed brokerage platforms, the regulations are laxer there. You may find a number of bitcoin funds on several platforms, including E*Trade by Morgan Stanley, WellsTrade by Wells Fargo, Merrill Edge by Bank of America, Charles Schwab, and Robinhood.
On the other hand, Vanguard has stated that it will not be offering any crypto-related products on its brokerage platform and has no intentions to create a bitcoin ETF. The behemoth in asset management recently characterized bitcoin as “more of a speculation than an investment” in a blog post.
As the price of bitcoin has recently surged, wealth manager Blake Spencer of the Pinnacle Financial Group has noticed an increase in customer requests regarding bitcoin investments. Trading above $73,000 early Wednesday, Bitcoin rocketed to a fresh high. Increased by more than 70% in 2024.
According to Spencer, the vast majority of clients he speaks with are unaware that ETFs exist. Whether or not to invest in bitcoin and how to gain exposure to it are questions they are attempting to answer.
The Grayscale Bitcoin Trust, which was listed on the LPL platform before being transformed into an ETF, is offered by his firm, which is linked with LPL Financial, according to Spencer. He expressed his desire to find more affordable options for his clientele.
Some smaller registered investment advisors already have the money.
Bitwise, BlackRock, Fidelity Investments, and Franklin Templeton all offer spot bitcoin ETFs, and Carson Group, which oversees $34 billion in assets and over 500 advisers, has given its approval to all of them.
The four funds were approved after a thorough evaluation of their fees, spread, trading volume, asset growth, custodians, shareholder base, benchmarks, and trading partners, according to Carson Group investment strategist Grant Engelbart.
Our advisers should be well-versed in all asset classes, have the skills to distribute client accounts wisely, and be able to connect with clients of all ages. “Engelbart” stated.
