Advisors Playing Huge Role in Validating Bitcoin

It’s been well-documented that registered investment advisors have played pivotal roles in terms of adoption of exchange traded funds, helping US-listed exchange traded products to a staggering $8.44 trillion in combined assets under management as of the end of April.

So while traditional ETFs (bonds, equities, etc.) are obviously beloved by advisors and clients, there may have been some reservations about just how popular bitcoin in the ETF wrapper would prove to be in the advisory/wealth management community. Those concerns have been allayed. As of May 18, the recently launched spot bitcoin ETFs had nearly $34 billion in assets, according to The Block.

Making that figure all the more impressive is that it excludes the Grayscale Bitcoin Trust (NYSEARCA: GBTC), which has endured a spate of outflows because new rivals charge significantly lower fees. To its credit, Grayscale is addressing that issue with an upcoming “mini-GBTC” product.

Point is when a segment of the ETF market can be measured in the tens of billions of dollars, it’s likely that advisors are big reason why those lofty assets under management tallies are reached. That’s the case with spot bitcoin ETF adopters.

Who’s Who of Money Managers Buying Spot Bitcoin ETFs

In what is arguably validation of bitcoin as an investable asset class, the roster of advisory firms and wealth managers that own spot bitcoin ETFs is familiar and impressive. According to recent 13F filings with the Securities and Exchange Commission (SEC), Brown Advisory, Hightower Advisors, Integrated Advisors and Sequoia Financial Advisors owned a combined $95 million worth of spot bitcoin ETFs at the end of the first quarter.

Sure, that’s a fraction of the combined $185 billion in assets those four firms manage, but that $95 million is also confirmation professional investors, including advisors, see validity in bitcoin and are using ETFs to express that view.

“All told, 563 professional investment firms reported owning $3.5 billion worth of bitcoin ETFs as of last Thursday. By the time the May 15 filing deadline arrives, I suspect we may end up with 700+ professional firms and total AUM approaching $5 billion,” notes Matt Hougan, chief investment officer at Bitwise Asset Management.

Interestingly, spot bitcoin ETFs appear to be pacing ahead of the SPDR Gold Shares (NYSEARCA: GLD) in terms of initial penetration in the advisory community. That’s saying something because the November 2004 debut of GLD is widely viewed as one of the seminal events in ETF history.

“The closest comparison I could find in the historical record was the launch of gold ETFs in late 2004. At the time, the gold ETF launch was considered the most successful ETF launch of all time, gathering more than $1 billion in its first five days on the market. But at its first 13F filing, gold ETFs had just 95 professional firms invested in the product,” adds Hougan.

Spot Bitcoin ETFs Have Room to Run with Advisors

It’s reasonable to expect spot bitcoin ETFs will continue gaining traction with advisors. Typically, advisors avoid new ETFs regardless of asset class and that situation is amplified with bitcoin funds because advisors often have lengthy cryptocurrency evaluation periods.

Additionally, as Hougan points out, advisors typically wade into crypto rather than making big initial splashes. That implies that as their comfort level increases, so will spot bitcoin ETF AUM.

Next, these professionals typically allocate on behalf of a few clients—usually those who have proactively asked them about crypto,” he concludes. “Beginning about six months after the initial allocation, many firms begin allocating across their entire book of clients, with allocations ranging from 1-5% of the portfolio.”

Bottom line: spot bitcoin ETFs are in their infancy, but initial advisor adoption trends bode well for these products.

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