Feb 13, 2024 - Economy

Bitcoin is everywhere but on the lips of advisers

Illustration of a U.S. quarter coin with duct tape covering George Washington's mouth

Illustration: Annelise Capossela/Axios

Investment advisers approached by Axios were well aware of bitcoin's omnipresence this week at VettaFi's Exchange ETF conference in Miami. They also clearly didn't want to talk about it.

Why it matters: Some investment advisers aren't allowed to talk about the world's largest digital asset with their clients, let alone park their money in it.

Catch up fast: After years of trying, bitcoin exchange-traded funds were finally approved by a reluctant Securities and Exchange commission in January, giving the cryptocurrency a pathway to investment portfolios alongside stocks and bonds.

  • But as of now, it's not exactly a marked path.

What they're saying: One adviser at a large brokerage firm, who agreed to speak on the condition of anonymity, said they weren't allowed to even answer a client's question about bitcoin.

  • Of note: Clients also aren't asking about it as much, he said — "they were two years ago."

Between the lines: Why the Red Scare-level silence? The adviser cited the Know Your Customer and suitability rule, which says that a broker has to have an understanding of the product and the customer before making a recommendation — a lack of understanding would violate the rule.

  • And the definition of "recommendation" under the rule is broad, causing many to just avoid the conversation.

The big picture: The market has plenty of new product — there are 10 bitcoin ETFs currently trading. But to get new investors through the door by the droves, the folks who are charged with explaining how they work... need to actually know how they work.

  • Allocation talk will come, but that happens after the basics.
  • Our thought bubble: There's still a way to go.

State of play: The effort from ETF issuers to educate advisors is underway.

  • "We're spending time teaching," Invesco senior alternatives ETF strategist Kathy Kriskey tells Axios, emphasizing its partnership with crypto native firm Galaxy Digital.
  • The Invesco Galaxy Bitcoin ETF (BTCO) has about $350 million in assets under management, nothing to sniff at within weeks of launch, but behind larger rivals who have surpassed more than $1 billion in assets.

Zoom in: After that, bitcoin ETFs will be sitting alongside other alternative investments.

  • The idea at that point is to get folks to warm to the digital asset and "get off zero" allocation, Kriskey says. "Most of the time, when you ask, will you miss [the] 1% allocation [from] equities?"
  • "The answer is not really," says Steve Kurz, Galaxy's head of asset management.

Context: In other words, for an investor with a 60/40 stock-to-bond allocation, taking a 1% allocation from the equity sleeve and parking it in bitcoin doesn't meaningfully change the risk profile of the overall portfolio, but can add to potential returns, according to Galaxy's research.

The bottom line: Past performance is not an indication of future results, so the usual investment disclaimer goes.

  • But with crypto zooming up again, it'll likely start generating more questions from clients — and will be hard for advisers to continue punting on them.
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