Sometimes being a financial advisor means never having a FOMO.
("Fear of missing out," that is, for all you crypto squares out there.)
Bitcoin burst through the $90,000 level this week before pulling back slightly. The digital asset is up close to 30 percent since election day and over 105 percent so far in 2024.
But wait. There’s a bit more.
Since the SEC approved spot bitcoin ETFs in January, there have been 11 funds launched tracking the digital currency totaling close to $94 billion. The largest of the lot, the BlackRock iShares Bitcoin Trust (Ticker: IBIT), holds over $42 billion in assets at last check.
Not a bad run for a relatively new asset class. Not bad indeed.
Unless, of course, you missed it. And for some financial advisors yet to jump on the bitcoin bandwagon, missing out is no big deal at all, thank you very much.
Seth Hickle, managing partner at Mindset Wealth Management, for example, does not currently allocate a sleeve of clients' portfolios to bitcoin, maintaining that it is “outside of our specialty.” Nevertheless, if a client expresses interest in gaining exposure to bitcoin, he said he is open to a discussion.
As to what it would take for him to change his mind about the asset class and start allocating assets to it in earnest, Hickle said he wants to see it mature beyond being simply "a store of value driven by supply and demand and into the next phase of real-world application."
“When the adaptation and use-case scenarios begin to be adopted on a more widespread basis, the utility of bitcoin can truly be unlocked. But for now it seems like more of a novelty investment than an integral part of a portfolio,” Hickle said.
Chris King, founder and CEO at Eaglebrook, also said he believes bitcoin is still too early in its existence for many advisors to proactively pitch to clients. He said most advisors who allocate to bitcoin on the Eaglebrook platform are driven by their clients asking about it, not advisor outreach.
The fact that bitcoin is screaming higher and gaining more media attention will likely increase interest in the asset class, King said. But overall, he said bitcoin is “not legitimate in many advisors’ minds.”
“There are many misconceptions the institutional community has about bitcoin. As trusted financial institutions such as BlackRock, Fidelity, and others actively advocate for bitcoin, skeptical advisors will start listening and considering an allocation to bitcoin,” he said.
Finally, Matt Nielsen, advisor and co-founder of Kingswood Family Office, said his endowment style of investing does not mesh well with bitcoin. At least not yet.
“We are tasked with the great responsibility of protecting our clients' wealth, and it is our job to separate the media, the noise, and the excitement around an asset class or individual stock and look at the data. In the end, the math always wins,” Nielsen said.
He said bitcoin’s volatility conflicts with his management style and his clients’ best interests.
“Its value can fluctuate dramatically within hours, let alone days, influenced by factors like market sentiment, regulatory news, economic shifts, and even social media trends. This volatility creates a highly unpredictable environment, which can be stressful and difficult to manage for investors seeking stability,” he said.
Instead of allocating assets to bitcoin, he said other alternatives like real estate, private equity, or private credit can serve a similar purpose in a portfolio, while minimizing risk.
Still, as bitcoin’s regulatory status evolves and custody solutions increase, Nielsen can see them eventually becoming a small percentage of an allocation for a client. In his view, it reinforces the perception that their investments are forward-looking and adaptive to new technologies.
“Bitcoin represents innovation, and high-net-worth clients who are open to cutting-edge opportunities may appreciate this exposure. This cautious approach would allow clients to diversify, hedge, and gain exposure to an innovative asset class while adhering to the principles of wealth preservation and risk management,” he said.
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