Cryptocurrencies are gaining momentum among financial advisors, but many are waiting for an exchange-traded fund that would provide exposure to digital assets without worrying about complex storage and security procedures.
According to a Nasdaq survey, 72% of advisors who are currently allocating or considering allocating client assets to crypto would be more likely to do so if a spot ETF, which is comprised of crypto-related assets offered on traditional exchanges by brokerages to be traded as ETFs, is approved in the United States. Index funds are also attractive, with 86% of advisors expecting to increase allocations to crypto through them over the next 12 months.
“We have seen a strong interest from investors to access digital assets through an index/basket approach,” Jake Rapaport, head of digital asset index research at Nasdaq, wrote in an email. “As demand continues to surge, advisors will be looking for an institutional solution to the crypto question that now dominates client conversations.”
A spot-based crypto ETF would be easier for average advisors to use as it would
However, there is a lack of confidence among financial advisors that a spot ETF will be approved by the SEC in 2022, according to the Nasdaq survey. Only 38% find it likely. The
Rapaport said regulations and compliance remain the major factors that influence advisors’ decisions with crypto exposure. The use of crypto is highest within the RIA channel, with 34% using crypto compared to 19% of independent broker-dealers (IBDs) and 17% of wirehouse advisors, according to the survey.
“If you're at a major wirehouse, your compliance department is going to be particularly robust and conservative along the spectrum there,” Rapaport said, “If you're an RIA, your compliance rules may be a little bit more forgiving, or perhaps nuanced.”
Outside of the U.S., issuers create products that can track an index of investable cryptocurrencies. The Nasdaq Crypto Index (NCI), for example, is a basket-based product that tracks the performance of 10 USD-traded digital assets including bitcoin and ethereum. Companies like Hashdex, an asset management firm with $750 million AUM, provides a crypto index ETF listed on the Bermuda stock exchange tracking the NCI as a benchmark.
“It’s basically saying, there's enough people and enough volume investing in these cryptocurrencies that they want to allow people to trade them on their platform,” Apkarian said.
Fees are still a deciding factor for financial advisors to weigh the cryptocurrency exposure options available on the market. Greyscale Trust, a trust that stores cryptocurrencies offline, has been negatively viewed by some advisors and investors because of the high fees associated with ownership, said Apkarian.
Grayscale Bitcoin Trust charges a 2% annual management fee, and Grayscale Ethereum Trust charges 2.5%, which is higher than the typical fees that cryptocurrency platforms like Onramp (1% sales fee) and Flourish (0.25% percent per trade and an annual custody fee of 0.65%) charge.
“It is going to be a race to zero just like the rest of the financial services industry,” Apkarian said. “Whoever can offer the exposure at the easiest and the cheapest is probably going to be the winner.”
