Spot Bitcoin ETFs are making some investors and financial advisors more comfortable with putting their money into digital assets, according to panelists on the “Bull or Bear: Why Investors Should Care About Digital Assets” panel at the Wealth Management Edge 2024 conference on Monday.
Don Friedman, president of the Financial Professionals Digital Asset Council, Mike Reed, senior vice president and head of digital asset strategic partnerships at Franklin Templeton, and Kyle DaCruz, digital asset product director with Van Eck, also spoke about how blockchain it can ultimately change how many financial transactions are completed because of its transparency and usefulness as a digital ledger.
“We're moving from a trust economy to an authentication economy,” Friedman said. “Think about when you go to buy a house. You have all kinds of documents. There are auditors, there are bank people, there are mortgage brokers. All of that, once you go blockchain, will go away.”
Today, however, only a minority of investors have a grasp of blockchain, making many investors reluctant to make investments in this way. Panelists acknowledged that trading crypto assets directly on an exchange like Coinbase also comes with counterparty and operational risks. In addition, it is expensive. For example, retail investors pay a fee of about 2% per transaction when they buy Bitcoin directly through these exchanges, according to Coinbase's public filings.
This is one reason why Bitcoin ETFs have soared. For most spot Bitcoin ETFs, transaction fees currently range from 20 basis points, and many fund operators have temporarily waived these fees altogether. Since the launch of these ETFs in January, investors who have participated now have allocations to Bitcoin assets that range between 1% and 3% of their portfolios, Friedman said. Reed mentioned that he had relatives who were reluctant to invest in Bitcoin through Coinbase, but are now buying shares of spot Bitcoin ETFs. The ETF launches also caused other departments within Franklin Templeton to view Bitcoin with less skepticism, he noted.
“The thing that really excites us about Bitcoin and Bitcoin allocations, in particular, is that Bitcoin is a great proxy for the overall space. And there are so many really cool and interesting things going on outside of Bitcoin. But Bitcoin is still the largest asset and it captures a lot of market data, so kind of a beginner's toe in the space, getting a small allocation is an interesting way to play it,” Reed said.
The Digital Asset Council surveyed financial advisors, finding that most believe clients would be satisfied with an average annual return on investment of 7%. With an average annual return of 7% and portfolio balance scenarios set at 60/40, 59/41, 58/42 and 57/43, small allocations to Bitcoin did not negatively alter the results. “If Bitcoin goes to zero, the negative impact on the wallet is so small that no customer will be upset,” Friedman noted.
In Friedman's vision, advisors can use the fact that they can invest in crypto as a marketing opportunity to get new clients. “Even if you don't want to recommend it, 22% of Americans already own it, and that's been increasing since the Bitcoin ETFs,” he said. Advisors can also benefit from starting with Bitcoin ETFs to get clients comfortable moving into other types of digital assets.
For those advisors who want to know more about crypto and digital assets in general, panelists recommended taking advantage of industry groups that offer courses on these products, talking to asset managers who aren't “cryptozealots,” and investing small amounts crypto money. themselves.
Franklin Templeton, for example, offers a library of materials on crypto assets, but “I would actually be an advocate, if you're confused about what's going on here, do it, get involved, open a Coinbase account,” Reed said.
“You don't need a lot of money to do this; I think my first account was $1000 or something like that. And then I bought some assets and transferred them to another wallet outside of Coinbase and within about 10 minutes, my money was gone,” he added. “And then it showed up in the new wallet because there had to be a new block of data. written. It helped me understand it. It helped me understand the pain points for handling the space as well. It helped me realize his potential.”