As bitcoin ETFs fuel crypto's rally, here's what financial advisers are telling clients

By Frances Yue

Crypto-market participants have been hoping that the recent launch of spot bitcoin exchange-traded funds will draw financial advisers - who oversee trillions of dollars in client assets - into the space.

However, as bitcoin (BTCUSD) continues to trade near record-high levels, many financial advisers are holding mixed views on the asset.

Since the U.S. Securities and Exchange Commission approved 10 bitcoin ETFs for the first time in January, the funds have attracted billions of dollars in investor capital.

Douglas Boneparth, president at Bone Fide Wealth - a financial-planning firm mostly targeting customers aged 28 to 42 - said his firm has seen a jump in queries from clients "who have expressed deliberate interest in allocating to bitcoin since the ETFs came out."

Such interest has been the primary driver of bitcoin's recent rally, as there is demand from a new pool of investors who haven't wanted to access bitcoin through crypto exchanges, Boneparth said in a phone interview.

"They can now just call up their financial adviser or go to their brokerage account themselves, and allocate to bitcoin by simply pressing a ticker symbol just like they would for the S&P 500," he noted.

Read: Bitcoin keeps setting new record highs. Are retail investors back in the game?

Also read: 5 ways bitcoin ETFs are already changing how crypto is traded

Bitcoin has been refreshing its record high over the past week, trading above $70,000 before pulling back below that level over the weekend, according to CoinDesk data. The crypto is up nearly 57% so far this year, building on a 150% gain in 2023.

Grant Engelbart, investment strategist at investment-adviser platform Carson Group - which has $30 billion in assets, about 500 advisers and more than 150 partner offices in its network - said the firm has been telling its advisers to target clients that already have crypto allocations when it comes to bitcoin ETFs.

Carson Group said in February that it had greenlit four of the 10 bitcoin ETFs for its own ETF platform - namely, those issued by BlackRock IBIT, Fidelity FBTC, Bitwise BITB and Franklin Templeton EZBC.

"We haven't really pushed it on our advisers in terms of saying, 'You need to get this into client portfolios,' or anything in that regard," Engelbart said. "But we've done it mostly in a reverse-inquiry way where, if clients are interested, this is a way to add a small allocation on our platform, and do it in a way that can be rebalanced."

Jordan Naffa, director of financial planning at Arista Wealth Management, said his firm does not recommend crypto to its clients, as the assets are speculative in nature. The firm is also waiting for more guidance on crypto from the SEC and the Internal Revenue Service.

Naffa said that Arista doesn't add crypto into its modeling, either, because there's not enough historical data on bitcoin - which has a relatively short history of 15 years in comparison to stock indexes like the S&P 500, which has existed for over 60 years.

"An adviser's job, in my view, is to mitigate a lot of extreme outcomes. You're not going to be in an asset class where you're going to make a killing - but you're not going to be in an asset class where you're going to get killed," Naffa said. "With crypto right now, it's just too volatile of an asset class for us to recommend to our clients who are entering in phases of retirement."

For clients that are in the wealth-accumulation phase, Naffa said that if they are persistent on investing in crypto, Arista usually recommends they allocate no more than 5% of their portfolio to the asset class.

Still, as bitcoin keeps trading near all-time highs, Naffa said his firm has seen an increase in client inquiries about crypto - a trend in line with the surge of queries when a particular stock does well, he noted.

Clients have also been asking whether bitcoin can be used as a hedge against inflation and whether crypto has higher expected returns relative to other asset classes, as well as its risks, Naffa added. They've also been curious about crypto's underlying blockchain technology, he said.

-Frances Yue

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03-18-24 0600ET

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