As bitcoin ETFs grow larger and more liquid, due diligence teams at wirehouses and other investment firms are more likely to clear them, Bitwise researcher says
The latest surge in interest for US bitcoin ETFs is putting additional pressure on firms that currently don’t offer their clients access to them, industry watchers say.
The 10-fund segment notched record net inflows of $673 million on Feb. 28. Combined trade volumes reached $7.6 billion that day, shattering the previous record of about $4.5 billion set during the ETFs’ first day on the market.
Last week’s weekly inflow total for the funds was roughly $1.7 billion — second only to the amount of more than $2.2 billion seen from Feb. 12 to Feb. 16. The trading volumes of the bitcoin ETFs reached new heights, amounting to about $22 billion from Feb. 26 to March 1.
“That demand absolutely impacts how these funds are viewed by wirehouses and wealth managers,” said Bitwise researcher Ryan Rasmussen.
Initial demand in these funds has been driven largely by retail investors. Analysts and industry executives have said they expect another wave of flows as more investment firms and platforms allow clients to allocate to the ETFs.
Many platforms have specific liquidity requirements — like assets under management and average daily trading volume minimums — that funds must meet before they consider approving them on their platforms.
BlackRock’s iShares Bitcoin Trust (IBIT) crossed the $10 billion assets under management mark late last week — a feat reached faster than any ETF in history. Fidelity Investments’ Wise Origin Bitcoin Fund (FBTC) stood at roughly $6.5 billion at that point.
Grayscale Investments’ Bitcoin Trust ETF (GBTC) brought over assets from operating as a trust in OTC markets for a decade or so. The fund’s assets under management totaled about $27 billion on Friday.
“The larger and more liquid these funds become, the easier it is for the due diligence teams to clear them for trading,” Rasmussen told Blockworks. “In other words, it’s hard to justify restricting access to ETFs with billions in [assets under management] and trading hundreds of millions in volume daily.”
Brokerage titans Fidelity and Charles Schwab began giving investors access to bitcoin ETFs after their launch on Jan. 11.
Bloomberg reported last week that Wells Fargo and Bank of America’s Merrill have begun offering bitcoin ETFs to some of their wealth management clients.
A Wells Fargo spokesperson confirmed to Blockworks that the bitcoin ETFs are available for “unsolicited purchases” through one of the firm’s advisers, or through its online WellsTrade platform.
Fund giant Vanguard, meanwhile, has blocked the buying and trading of such funds on its brokerage platform — calling the investment case for crypto “weak.”
On the registered investment adviser (RIA) front, Bloomberg reported last month that Carson Group has approved four of the bitcoin ETFs. The Nebraska-based RIA has roughly $30 billion on its platform.
Meanwhile Savant Wealth Management — an RIA that manages about $25 billion in assets — has no plans to approve the bitcoin ETFs for its investment models, according to director of investment research Gina Beall.
“At Savant, we take an evidence-based approach to investing,” Beall told Blockworks. “So we prefer to work with asset classes that can provide us with a good basis for understanding the expected return.”
The bureaucracies within a number of bigger companies can especially slow things down, according to Ric Edelman, founder of Edelman Financial Engines.
“Investment Committees and compliance and risk management officers aren’t going to capitulate to pressure from the sales and marketing teams,” Edelman told Blockworks. “So unless the C-suite imposes urgency, it could be 2025 before some of these firms add the products to their platforms.”
Still, the timeline for wealth managers to start allocating to bitcoin ETFs is accelerating daily, Rasmussen argued.
“Their clients want to know why they aren’t invested in one of the year’s best-performing assets, and firms and reps don’t want to tell them, ‘We can’t invest in it.’” he added. “You can imagine the frustration — and business risk — that would cause.”
David Warshaw, founder of The Wealth Plan, said his clients are not yet clambering for a bitcoin ETF. Still, he is starting to offer the option to invest in them.
Warshaw manages about $65 million in assets for 125 households out of his Great Neck, New York-based firm.
Most of the crypto-based investments he manages are allocated to a diversified strategy by Arbor Digital, via the Eaglebrook Advisors platform. Those investments currently account for about $400,000 across 20 or so clients, he said.
But the bitcoin ETF offers a narrower single-asset exposure that may be appealing for clients looking to take “baby steps” into the space, Warshaw told Blockworks.
The investment professional has picked out several bitcoin ETFs for allocation — noting that investing a client’s assets into multiple funds that have different custodians is a prudent way to diversify.
“The first step for me was just to see how [the launches] went,” he told Blockworks. “I just needed to figure out who I wanted to work with. Now that I have those funds lined up, now it’s just a question of how much.”
Warshaw recommends to clients a crypto allocation between 1% and 5% of their portfolio.
“I just tell clients, whatever we do with this, you could lose all your money,” he said. “Do I think they’re going to lose all their money? No…but this is not the stock market; this is a highly speculative digital asset that has done frankly incredible over its lifetime.”
Bitcoin’s price (BTC) was hovering around $65,000 on Monday morning — up roughly 190% from a year ago and about 27% in the last week.
The 10 US spot bitcoin ETFs have so far seen about $7.4 billion of net inflows since launching on Jan. 11.
Matthew Hougan, the chief investment officer of bitcoin ETF issuer Bitwise has said he expects a “secondary acceleration” of flows when the funds get onto national account platforms. The executive added during a CNBC interview last week that he was set to meet with “one of the largest institutional consultants in the US” about Bitwise’s bitcoin ETF.
While Warshaw is ready to allocate to bitcoin ETFs for clients wanting to jump in, many firms are still reviewing the funds — comparing the issuers, as well as the product expense ratios and spreads, Rasmussen said.
“Once they select which ETF, or ETFs, they prefer, they still have to add them to their model portfolios and bring the wealth managers up to speed,” he explained.
Edelman previously said he expects financial advisers could allocate more than $150 billion into spot bitcoin ETFs in the next two years.
But, he noted, the biggest remaining challenge is training the many advisers that lack literacy around bitcoin, blockchain technology and the broader digital assets space.
“While it will take some time, and there are a few more hurdles to clear, we’re getting closer every day,” Rasmussen said. “I think we’ll start to see most wealth managers allocating to bitcoin within the next 12 to 18 months.”
Source: blockworks.co