Several RIAs took large positions in Bitcoin ETFs in the country during the first quarter and in the months after The SEC approved the vehicles in Januaryaccording to the latest quarterly 13-F filings.
Legacy Wealth Management, a Woodbury, Minn.-based RIA. with 398 clients and $394 million in AUM, disclosed the purchase of 352,594 shares in Fidelity Wise Origin Bitcoin ETF (FBTC) for $21.9 million. United Capital Management of Kansas, a Salina, Kan.-based RIA with $304 million in AUM, bought 349,999 shares in the same ETF for $21.6 million.
The shares represent respectively 6.09% and 4.97% of the portfolio of the firms. In addition, Quattro Financial Advisors, a Woodlands, Texas-based multifamily office with $988.8 million in AUM, purchased 468,200 shares of Blackrock's iShares Bitcoin Trust (IBIT) for 18.9 million dollars. The investment represents 5.4% of Quattro's portfolio.
The moves are noticeable considering initial reluctance by some RIAs to distinguish bitcoin ETFs after they were first adopted. The positions also represent some of the largest single investments in any of the 11 spot bitcoin ETFs since their inception.
As of April 23, 11 spot bitcoin ETFs have posted $12 billion in net inflows, according to Aniket Ullal, vice president of ETF data and analytics with investment research firm CFRA. However, when the outputs associated with Grayscale Bitcoin Trust ETF (GBTC) are taken out of the equation, other ETFs in the sector saw $28 billion in inflows. While CFRA does not track where inflows come from, market insiders say most allocations are from the retail channel, Ullal noted.
“We talk to market participants and marketers in the space and what we've heard is that most of the money that's come in so far has been driven heavily by retail and RIA,” he said.
Chad Koehn, CEO of United Capital Management of Kansas, said the firm had a significant stake in Grayscale Bitcoin Trust before it converted to an ETF in January. United decided to reallocate to Fidelity because of lower management fees. Grayscale currently charges a 1.5% fee, the highest of the 11 bitcoin ETFs. Fidelity's fee is 0.25%. However, the company has completely removed it by August 1.
According to Koehn, the RIA has been bullish on the crypto sector for several years, with about 9% of its total assets allocated to crypto holdings. This includes exposure to ProShares Bitcoin Strategy ETF (BITO) AND Grayscale Ethereum Trust (ETHE)among others.
“We were particularly interested in Fidelity because they sell custody,” Koehn noted. “We just didn't want 100% of our assets to be stored on Coinbase. Maybe it's unwarranted paranoia, but that's what we've chosen to do.”
Legacy Wealth Management did not respond to requests for comment prior to publication. Quattro could not be reached for comment.
According to Ullal, FBTC had $1.74 billion in inflows as of April 23, with $2.26 billion in total assets, indicating that the ETF had grown in value. Bryan Armour, director of passive strategies research, North America, with Morningstar, also noted that IBIT's FBTC shares and shares are two of the most popular and liquid Bitcoin ETFs on the market. IBIT also charges a fee of 0.25%, with a reduced offering of 0.12% for the first year of trading or the first $5 billion in fund assets.
However, Armor cautioned that allocating a significant percentage of an investment portfolio to Bitcoin ETFs it can be counterproductive if advisors want to diversify. He pointed to 2022, when total returns for Bitcoin fell by over 65%, mimicking what happened in the stock and bond markets.
“It's unrelated, but it's also purely speculative,” he noted. “There can be big price fluctuations. It almost always adds to the volatility of the entire portfolio and, in that sense, is not a diversifier.”