Net inflows into US spot bitcoin ETFs stand at more than $1.2 billion — a number industry watchers expect to balloon exponentially as more investment professionals allocate to such funds.
Many of the “primary market” Alex Thorn is the research manager at Galaxy Digital. He says it will take more time for clients to invest in spot bitcoin exchange-traded funds.
Thorn’s comment is in reference to the sector of wealth management, whose assets he believes to total $48 trillion.
“Most of US wealth management [assets under management] is affiliated with banks or broker-dealers, and these platforms have not yet added the bitcoin ETFs to their investment options,” Thorn tells Blockworks. “That takes time, but it will happen.”
Around 80% of the financial advisors Bitwise and VettaFi surveyed late last year stated that they either were unable to purchase crypto for their clients or unsure if they could. The respondents included registered independent investment advisors (RIAs), broker-dealer reps, financial planners, and institutional investors.
Nearly 90% of the advisers surveyed said that they would wait until a bitcoin ETF is approved before adding Bitcoin exposure to their client’s portfolios.
Wirehouses — a term for firms such as Bank of America Merrill Lynch, Morgan Stanley and Wells Fargo — are usually the slowest to allocate to new offerings, said Ric Edelman, founder of Edelman Financial Services and the Digital Assets Council of Financial Professionals.
“Major firms all have investment committees, which need time to decide which of these products to approve for use,” Edelman tells Blockworks. “Meanwhile, their legal and compliance officers must write policies governing which of their advisers can offer these products, and which of the firm’s clients will be permitted to invest in them — along with how much each client is permitted to invest.”
Edelman noted that although independent RIAs have a greater degree of flexibility when it comes time to allocate new funds, a vast majority would not be doing so right away. Edelman noted that many advisers do not fully understand blockchain or crypto technology, and they will need to learn how to communicate these areas to their clients.
“Only after they get past that hurdle are advisers ready to tackle the big tactical questions,” Edelman said. “Which clients should invest in these ETFs? What allocation is best for them? How will the advisers communicate this recommendation, and how will they respond to client questions and objections?”
Edelman anticipates that financial advisors will allocate over $150 billion to spot bitcoin ETFs within the next two-years.
The ten spot bitcoin ETFs have been launched since Jan. 11. BlackRock, Fidelity and Grayscale Investments are the top two funds with over $2 billion in net flows each. Outflows have tempered gains for the Bitcoin Trust ETF by Grayscale Investments.
Edelman predicts the BTC funds to be on wealth manager platforms — with advisers given the ability to allocate to them on behalf of clients — over the next six to 12 months.
“To assess the real success of the bitcoin ETFs, months three through 12 will be much more important than months one through three,” Thorn Note
Ryan Rasmussen, senior crypto research analyst at Bitwise, said some wealth managers — namely RIAs — are already investing in crypto products, with allocations ranging between 1% and 5%. He said that such firms have created a crypto-sleeve within their portfolio model.
“That should translate to meaningful inflows into these products,” Rasmussen told Blockworks. “For example, if the spot bitcoin ETFs sucked up 1% of all ETF assets in the US, that would be more than $70 billion of assets under management in spot bitcoin ETFs. We believe that is very reachable.”
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