‘Primary market’ for bitcoin ETFs largely hasn’t yet adopted such funds

Financial advisers could spur $150 billion in spot bitcoin ETF flows, says Edelman Financial Services founder

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Galaxy Digital research head Alex Thorn | DAS 2022 by Blockworks

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Net inflows into US spot bitcoin ETFs stand at more than $1.2 billion — a number industry watchers expect to balloon exponentially as more investment professionals allocate to such funds.   

But much of the “primary market” for spot bitcoin ETFs needs more time before putting client capital into them, according to Galaxy Digital research head Alex Thorn. 

Thorn is referring to the wealth management sector, which he estimates to control $48 trillion in assets.

“Most of US wealth management [assets under management] is affiliated with banks or broker-dealers, and these platforms have not yet added the bitcoin ETFs to their investment options,” Thorn told Blockworks. “That takes time, but it will happen.” 

Roughly 80% of financial advisers surveyed by Bitwise and VettaFi late last year said they were either unable to buy crypto for clients, or unsure whether they could. Respondents included independent registered investment advisers (RIAs), as well as broker-dealer representatives, financial planners and other institutional investors.

Of the surveyed advisers interested in adding bitcoin exposure to client portfolios, nearly 90% said they were waiting until after a spot bitcoin ETF was approved.

Read more: SEC officially approves spot bitcoin ETFs in landmark decision

Wirehouses — a term for firms such as Bank of America Merrill Lynch, Morgan Stanley and Wells Fargo — are usually the slowest to allocate to new offerings, said Ric Edelman, founder of Edelman Financial Services and the Digital Assets Council of Financial Professionals.

“Major firms all have investment committees, which need time to decide which of these products to approve for use,” Edelman told Blockworks. “Meanwhile, their legal and compliance officers must write policies governing which of their advisers can offer these products, and which of the firm’s clients will be permitted to invest in them — along with how much each client is permitted to invest.”

While independent RIAs are more agile when it comes to allocating new funds, a majority won’t do so immediately, Edelman added. He noted that most advisers don’t fully understand crypto or blockchain technology and will have to figure out how to explain these sectors to clients. 

“Only after they get past that hurdle are advisers ready to tackle the big tactical questions,” Edelman said. “Which clients should invest in these ETFs? What allocation is best for them? How will the advisers communicate this recommendation, and how will they respond to client questions and objections?” 

Edelman expects financial advisers to allocate more than $150 billion into spot bitcoin ETFs in the next two years. 

Ten spot bitcoin ETFs launched on Jan. 11. While funds by BlackRock and Fidelity lead the pack with more than $2 billion of net inflows each, outflows from Grayscale Investments’ Bitcoin Trust ETF (GBTC) have tempered the sector’s asset gains. 

Edelman predicts the BTC funds to be on wealth manager platforms — with advisers given the ability to allocate to them on behalf of clients — over the next six to 12 months.

“To assess the real success of the bitcoin ETFs, months three through 12 will be much more important than months one through three,” Thorn noted.

Ryan Rasmussen, senior crypto research analyst at Bitwise, said some wealth managers — namely RIAs — are already investing in crypto products, with allocations ranging between 1% and 5%. Teams at such investment firms are creating a crypto sleeve in their model portfolios, he added. 

Read more: Financial pros mull allocation boosts to ‘chaos-resilient’ BTC: Bitwise

“That should translate to meaningful inflows into these products,” Rasmussen told Blockworks. “For example, if the spot bitcoin ETFs sucked up 1% of all ETF assets in the US, that would be more than $70 billion of assets under management in spot bitcoin ETFs. We believe that is very reachable.”


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