With the bitcoin ETF out of the bag, advisors weigh in

The SEC blessed a total of 11 bitcoin ETFs this week and they're up and trading on public exchanges. The long crypto winter, to repurpose a phrase, is officially over.

So what should financial advisors do now?

Rob Conzo, CEO of The Wealth Alliance, said the ETF wrapper may solve the problem of entry, as compared to holding crypto in a digital wallet, but it still doesn't end the controversy over an asset class predominantly seen as excessively risky.

“Although this does not change the speculative nature of the investment, it does open the floodgates to additional investors,” Conzo said. “This can be argued as a positive or a negative depending on whether you are for or against crypto. Either way, it appears crypto is fighting its way back into the spotlight given its recent headwinds, so only time will tell.”

Ed Williams, senior lead planner at Facet, said the ability to invest in bitcoin ETFs offered by some of the financial industry's most trusted names could rekindle investor interest in the wake of recent scandals. Certainly the price action of bitcoin in the past three months, up over 75%, demonstrates that a significant number of investors have moved beyond the ugly affairs at FTX and Binance.

Looking ahead, Williams sees the potentially more interesting story being the Fed's exploration of a central bank digital currency, or "digital dollars."

“Combining bitcoin's capabilities with a currency backed by the US government is really exciting,” Williams said. “Even though the idea of a bitcoin ETF is generating tremendous hype, it's important to remember that these assets are still quite new compared to other, more traditional investments, so remains difficult to quantify the risks.”

Speaking of the US government, Tom Hulick, CEO of Strategy Asset Managers, is bullish on bitcoin partly due to US ownership of a massive chunk of bitcoin assets.

“We know the US government owns more bitcoin than any other country,” he said. “According to Forbes, Washington owns more than $5 billion worth of seized bitcoin and has been reluctant to part with it. That may represent inertia more than strategy. Still, the government is not necessarily purchasing the coins, but they are holding onto it after they seize it.”

In other words, Hulick believes Uncle Sam has “diamond hands.”

“When we looked at 10 years of money supply information and inflation data, money supply was increasing, and as fear of inflation was increasing, bitcoin was being increasingly held by other governments as well,” he said.

Maurice Wilson, financial advisor at Wilson Wealth and a member of the Association of African American Financial Advisors, has already bought bitcoin ETFs for clients and intends to buy more, eventually bringing their crypto allocations to 5%.  

“My job is to help my clients make money by investing in things they don’t have the time, inclination or experience to pursue, while at the same time managing risk within reason,” Wilson said. “With crypto, particularly bitcoin, it was never whether or not it made money. It was always the risk of having your crypto coins stolen. With the introduction of ETFs that track the price of bitcoin, I can get exposure to the investment for my client, without the risk of theft.”  

Meanwhile, Shelby McFaddin, investment analyst at Motley Fool Asset Management, is recommending that bitcoin and bitcoin ETFs be treated as part of a separate asset class that can be included in a portfolio from an asset allocation perspective – but not at the expense of equities.

“I believe it is likely to add a lot of volatility to the portfolio overall,” McFaddin said. "Keep in mind that, overall, as of today a large portion of the amount invested in crypto assets are concentrated among a smaller set of people, due in part to generational perspectives, investment of time to learn and monitor, and the regulatory issues that might restrict allocation amounts for certain institutions such as pensions."

Eric Amzalag, CEO and founder of Peak Financial Planning, is also bullish and said he plans to add position positions somewhere between 1% and 5% across all his models unless a client specifically opts out. Amzalag plans to wait about a week before buying in order let the dust settle from the retail rush into the bitcoin ETFs.

“I believe bitcoin is a better hedge than gold and offers greater trading volatility especially when compared to gold's long-term performance,” he said.

Emmanuel “Manny” Henson, financial advisor with Gamma Wealth Management and also a member of the Association of African American Financial Advisors, also sees parallels to the mining sector.

“Like precious mining companies, I view the extraction of crypto to be the only viable investment option. I'd rather the client be the house, instead of the gambler,” Henson said. “At this time, I have had clients in Coinbase. I've been averaging in from 2023 and will be looking at opportunities to lighten up on those positions, at some point, after getting some healthy profits.”

Finally, Kent Welborn, financial advisor at Welborn Financial, is not being swayed by the mass move into bitcoin, even with the SEC’s approval.

“It is difficult to place something in a client's portfolio that has no ability to earn income,” Welborn said. “Furthermore, from what we see, crypto usage as a means of purchasing items like a cup of coffee or an automobile has not been embraced.  For those reasons, we have avoided this and view it as speculation.”