While there have certainly been early adopters and proponents of cryptocurrency among financial advisors, many have been at least a little wary about the scandal and volatility that have dogged digital currencies in recent years.
But this week, the Securities and Exchange Commission
"There has been a fiduciary risk. If I put my client into bitcoin and ethereum and there is fraud, that's a problem," said Adam Blumberg, a certified financial planner and co-founder of both
Among the other benefits expected from spot ETFs are lower fees, less risk than confronted by futures-based ETFs and an influx of investment.
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"Bitcoin futures compared to bitcoin is the same as comparing stock futures to investing in stocks," said Ric Edelman, founder of the
The crypto ETF background
The SEC
The
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And that opened the floodgates. Besides Grayscale,
Creating legitimacy
It's no secret that crypto has had its share of bad news in recent years.
There is the massive fraud that
That's not to mention the overall volatility of bitcoin and others. In the last year alone, bitcoin has traded below $18,000 and as high as nearly $47,000.
SEC Chair Gary Gensler had noted the fraud that has pervaded some corners of the crypto universe as reason to oppose a spot-crypto ETF. But the regulator's approval of those vehicles now adds legitimacy to the asset class that some advisors have longed for.
"Many institutional investors have been reluctant to invest in bitcoin directly because of the lack of regulatory clarity. An ETF eliminates those concerns," Edelman said.
He
"The holy grail of crypto for advisors is a spot-bitcoin ETF. We've been waiting for this for many, many years," Edelman said.
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Dave LaValle, global head of ETFs at
"We think of SPY as this plain vanilla S&P 500 exposure … but in 1993, it was a pretty exotic institutional class of exposure that was then made available to the entirety of the marketplace.
"Well, now the ETF wrapper has been battle-tested for 30 years, so it is a point of credibility for advisors and the advice market to say, 'OK, now this is a wrapper. This is a framework. I understand this,'" LaValle said. "It's really just a question about whether the underlying asset is a fit for their client's portfolio from a suitability perspective."
SEC approval of a spot ETF may now also open the crypto door for more institutional investors, such as endowments and family offices.
"They have to go with a regulated, proven exchange," said Jackson Wood, portfolio manager at Freedom Day Solutions in Houston. "This allows them to get in."
Advisors then stand to gain in terms of assets under management, LaValle contends. He said he's heard from advisors whose clients have moved some assets out of firms that were not equipped to purchase crypto for their clients.
"I'll use the word frustration. They lost a lot of assets in the last bull run when their clients weren't able to access digital assets more broadly," LaValle said. "There's two problems for the advisor. No. 1, their asset base decreases, so their revenue is adversely impacted. And No. 2, probably more importantly, they don't have a holistic view on what their client's investment exposure is."
Investment considerations
SEC adoption of spot-crypto ETFs also stands to boost prices of the assets and reduce costs for investors.
Futures contracts are expensive. The Grayscale Bitcoin Trust, for example, has a 2% management fee. And the company's ethereum product has a 2.5% fee. Those are much higher than the costs for trading for actual crypto at places like Onramp and Flourish, where fees range from 25 basis points per trade to around 1% as a sales fee.
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Those higher fees come due to the active management required of futures contracts.
"Futures contracts expire and have to be rolled forward into the next month's contract. It's expensive, and there are tracking errors," Wood said. "Because they're commodities, they're not tied to bitcoin held in a wallet, and it doesn't track the underlying asset perfectly."
