With the recent introduction of Bitcoin Exchange-Traded Funds (ETFs) in U.S. public markets, a significant shift is expected in the wealth management landscape, potentially unlocking a substantial portion of the $30 trillion advised wealth management market. Analysts from Standard Chartered anticipate fund inflows ranging from $50 billion to $100 billion in 2024.
Bitcoin, which rose to as high as $49,000, is increasingly becoming a benchmark asset, especially for the younger generation. Anthony Pompliano, founder of Pomp Investments, notes that adding Bitcoin as a benchmark to asset allocation is a way for investors to keep up, considering the cryptocurrency’s rising prominence.
The surge in Bitcoin’s value, reaching levels not seen since December 2021, has sparked renewed interest, particularly from large money managers who were previously cautious due to the unregulated nature of cryptocurrencies. The Securities and Exchange Commission’s (SEC) approval of spot Bitcoin ETFs on Wednesday has removed a significant barrier, allowing investors to access Bitcoin in a manner similar to traditional stock and bond index funds.
Despite SEC Chair Gary Gensler’s warnings about crypto investments, the clearance has triggered increased activity. For instance, mutual fund manager Advisors Preferred Trust is allocating up to 15% of total assets in its Hundredfold Select Alternatives Fund for indirect Bitcoin exposure through funds and futures contracts.
Passive funds, aiming to enhance performance, are actively exploring ways to incorporate Bitcoin. Bitwise Asset Management, among the 11 issuers granted initial approval for a Bitcoin product, is targeting financial advisors and family offices with its Bitwise Bitcoin ETF, offering a low fee of 0.2% of holdings. Financial advisors are showing interest, with many considering allocations ranging from 1% to 5%.
A survey by Bitwise found that 88% of advisors interested in purchasing Bitcoin were waiting for the approval of spot Bitcoin ETFs. Robinhood data indicates that 81% of Bitcoin ETF trading volume in the first week came from individual accounts.
The SEC’s decision has broader implications for institutional investors, retirement accounts, and state and local pension plans. Financial firms differ in their advice on entering the crypto space, with some recommending a gradual increase in Bitcoin allocation to improve risk-return profiles.
The introduction of Bitcoin ETFs is expected to bring more legitimacy and lower costs for retirement plans, potentially increasing allocations. Financial experts believe that portfolios could benefit from even a small Bitcoin allocation, with historical data suggesting improved risk-return profiles.
As Bitcoin continues to gain acceptance as a potential hedge against inflation and a benchmark asset, its inclusion in investment portfolios is likely to expand across various sectors, from high-growth tech stocks to commodity-based portfolios. The arrival of Bitcoin ETFs marks a significant milestone in the mainstream adoption of cryptocurrencies within the wealth management industry.
Source: CNN
