So far, US regulators have refused applications for ETFs that directly hold cryptocurrencies. Securities and Exchange Commission chief Gary Gensler recently said the futures market is more heavily regulated, making it a safer bet for investors.
Other fund vehicles hold the crypto directly, but they struggle with different structural issues and incur higher fees, which dampen returns.
Grayscale Bitcoin Trust, the largest Bitcoin vehicle, with $27 billion in assets, costs 2% and trades on the “over-the-counter” market. But these trusts lack the flexibility of regular mutual funds and ETFs to balance supply and demand, so the price of their shares can deviate from the price of Bitcoin. Another provider, Osprey Bitcoin Trust, became available (for a fraction of the cost of Grayscale) in February, but faces the same challenges.
Grayscale, Bitwise and other providers have said that converting to an ETF structure would solve these problems, but they have not received the green light from regulators, who fear that the underlying coins could be subject to manipulation and of frauds. (ETFs that hold actual coins exist elsewhere, however — the Fidelity Advantage Bitcoin ETF, for example, is available in Canada.)
Investors seeking professional advice may find that more financial advisors now have first-hand experience with cryptocurrency, some of which may be motivated by an effort to educate themselves and answer questions with more confidence. Around 47% of advisors reported owning crypto assets in 2021, according to the Bitwise/ETF Trends survey, which surveyed 619 advisors. This was almost double the result of the previous year.
One advisor, Ritholtz Wealth Management, went so far as to introduce, with partners, a crypto-linked index offering broad exposure to its clients through a separately managed account. It charges 0.50% per year and has a registration fee of 0.70%.
The crypto is “hard to ignore at this point,” said Ritholtz research director Michael Batnick.
Cristina Guglielmetti, a Brooklyn-based financial advisor, called the vast majority of her clients “crypto first-timers”: “mid-life, familiar with tech/pop culture – it’s all around them.” She tries to understand why they want the crypto, while making sure they are aware of its place in their investment mix.