Is it time to buy bitcoin ETFs?
Exchange-traded funds based on bitcoin are now available to Australian investors through US markets — should you take the plunge?
How are financial advisors feeling about bitcoin these days? In years past, many have expressed deep scepticism, citing price volatility, regulatory uncertainties, and even the use of cryptocurrencies in criminal activities.
While plenty of doubts remain, the landscape has changed. In January, the US Securities and Exchange Commission approved 11 spot bitcoin ETFs. Two of the biggest, BlackRock’s iShares Bitcoin Trust and Fidelity’s Wise Origin Bitcoin Fund, are up more than 40 per cent so far.
(In Australia, bitcoin ETFs remain outside legal jurisdiction, though there are a queue of institutions waiting for the regulators to follow their US counterparts and allow bitcoin ETFs to list on the ASX. However, Australian investors are able to invest in US-listed products and are increasingly making that investment choice.)
So we thought it was time to check in again on advisors’ views of the asset and whether they’re recommending bitcoin ETFs to clients.
Jeffrey Janson, senior wealth advisor, Summit Wealth Partners says “I have been reaching out to clients proactively and asking if they want to take 10 minutes and talk about it. I don’t push it on them. We talk about position sizing and the volatility of the asset class. I would say 98 per cent of my clients have said, let’s dip a toe in the water and get off zero and see what happens.
“I definitely agree that it’s a speculative asset, but if you’re building portfolios, I don’t think having a small position in a speculative bucket is a problem. I actually think it’s beneficial for a well-balanced portfolio, especially if you’re going to rebalance periodically. I don’t know that there is one single solution to the allocation question. But when everybody is coming off zero, I’m actually thinking that 1 per cent would be a good place to start.”
Will McGough, director, investments, Prime Capital Investment Advisors says “Bitcoin has been a fun thing to talk about at cocktail parties for a long time, and it’s now easier for this conversation to be implemented than it was a few years ago.
“I think the SEC approving spot ETFs is huge for bitcoin, simply because it makes it a lot easier for financial advisors to access it through an ETF, versus having to get a digital wallet or use some app that’s away from their traditional custodian. Spot ETFs are obviously going to increase the attention and flow of assets toward bitcoin, which could lead to higher prices.
“I personally like bitcoin, but you have to see it in context: it is a speculative asset. It’s got no fundamental value, it’s got no cash flows, it’s essentially digital gold.”
Mark Matson, president and CEO, Matson Money says “I think it’s got no business in a prudent portfolio of anybody that has a purpose for their time, their energy, their money, their life, their retirement. It isn’t an investment. It’s pure speculation, for several reasons. “Cryptocurrencies have an annual standard deviation over the past five years upward of 90 per cent. So obviously it isn’t a real currency. When you buy it, you’re not buying a company, you’re not buying human capital, you’re not buying intellectual property or capital. You don’t own a factory, you don’t own products. At least if you’d bought gold, which I also am against, you’d actually have a physical property.
“These are random zeros and ones floating around in hyperspace that only have value because of what P.T. Barnum said, which is that there’s a sucker born every minute. So I just think cryptocurrencies and ETFs based on them are a terrible idea.
“Wrapping them up in an ETF doesn’t make it better. There are three types of cryptocurrency ETFs. There are ETFs that have actual coins in them. There are ones that are backed by futures. And there are ones that own stocks of companies that have a high exposure to bitcoin currencies. All three of those types are flawed: They’re either stock-picking, market timing, or track-record investing, and all of those have been proven to be flawed methods of investing.”
Paul Karger, managing partner, TwinFocus Capital Partners says “We have been investing in crypto for the past decade. It isn’t widespread across our (wealthy) client base — probably about 20 per cent have exposure to it — and we don’t push it on clients if they don’t feel comfortable.
“I personally own it and have exposure to it. I think you need to have some kind of exposure; it’s just too big of an opportunity to ignore. I think you can you just own the bitcoin itself. But obviously, it’s gotten much easier to own through ETFs.
“We recommend 1 to 2 per cent-type exposure. I do have certain clients who have 5 or 10 per cent exposure and who are just complete bitcoin fanatics. But that’s not for everybody. It’s one of these things that you have to set and forget. I can guarantee one thing: it is going to go up and it’s going to go down.
“Over the long term the merits are there for it to go significantly higher, given the limited amount of supply and the increasing demand.”
More Coverage
Why more investors put their money before the environment
Sustainable investing has been a growth area in recent years but a new study suggests some people are putting it on the backburner.
Why investors will bolt if property taxes change
Tinkering with property taxes drives investors out of the market – it’s just happened in New Zealand and now Canberra is looking at a very similar picture.