Bitcoin

Bitcoin ETFs are not winning the hearts and minds of financial advisors

Published

6 months ago

31 May, 2024

Omer Taha Satin | Anadolú | Getty Images

“It’s something I’m researching because I think I’ll eventually recommend it, but I’m not there yet,” Lee Baker, founder and president of Apex Financial Services in Atlanta, said in an interview. “For me and other advisors, if we get more track record, it increases the likelihood that it will end up in clients’ portfolios.”

CNBC spoke to a dozen members of the CNBC Advisory Board, which includes Baker, to learn why so many financial planners are still turned off by bitcoin and bitcoin ETFs, and what could cause them to change their minds. It all comes down to two main things: time on market and regulatory compliance.

“When [bitcoin] becomes more regulated, you will see more adoption,” said Ted Jenkin, founder and CEO of oXYGen Financial in Atlanta. “That being said, even if there is no regulation, if over time this can prove to be as stable an asset as a technology – because my point of view on this is more early technology than money – you will see more adoption.”

Most advisers said they are not initiating conversations or responding to client questions about ETFs — and most do not have more than one client who has made an allocation to the funds. Of these advisors, some are proactively educating themselves about bitcoin investing, while others – often those with an older, more traditional and conservative client base – are more dismissive.

Some of these advisors work with younger clients who have a greater appetite for risk and a longer investment horizon. They say their clients were already interested and informed about exposure to cryptocurrencies before this year and that the arrival of ETFs did not motivate them to join.

Performance evaluation

At 15 years old, bitcoin is at a stage of maturity comparable to that of a teenager – it has great potential, but still presents a lot of volatility. Bitcoin is up more than 59% this year and about 230% since its 2022 low, which deepened during the FTX collapse. Over the past three, five and 10 years, the cryptocurrency has gained 85%, 704% and 10,854% respectively. It has also suffered several 70% drawdowns over the years, which not all investors have been able to tolerate.

Many hope that consistent flows into bitcoin ETFs over the years can reduce this volatility, but for now, it is still a deterrent for some.

“Financial advisors now have a way to give clients access [to bitcoin] this is safe, reliable and regulated,” said Bradley Klontz, managing director of YMW Advisors in Boulder, Colo. “I love it…that it’s a tool in our toolbox for clients who want it. I just don’t see, at this point, most firms recommending that because they’re not recommending any asset class, or any specific asset, that has that much volatility.”

Rianka Dorsainvil, co-founder and co-CEO of 2050 Wealth Partners, said that the majority of her clients prioritize long-term stability and growth over high-risk opportunities, and that bitcoin ETFs’ “relatively early stage in the landscape financial and the ongoing volatility associated with bitcoin” are the main factors that keep bitcoin ETFs out of your investment strategies.

Cathy Curtis, founder of Curtis Financial Planning in Oakland, California, said she doesn’t know if bitcoin will ever be a stable asset class, but that she would consider adding it to client portfolios if it shows stable returns over at least 15 years.

“If it proves to be a true diversifier in stocks, for example, maybe,” she said. “The history of this asset did not show me that.”

Apex Financial’s Baker highlighted that investors have decades of software and tools to show them how a certain percentage of a particular bond, ETF or other asset in a portfolio can improve returns or increase volatility and more.

“As a group, we are quite conservative and somewhat risk averse,” Baker said. “We are so used to pulling graphics and [asking] how this thing worked and in what types of markets – it’s almost the way we’re wired.”

With a few more years on the market, investors will be able to do similar modeling with bitcoin, he added, which will help advisors become interested in the funds. He also said board members’ buy-in is a matter of when, not if.

“Right now… everyone should be convinced that [bitcoin’s] here to stay, [they’re] we just don’t understand some of the metrics in terms similar to how we might look at and value stocks or bonds,” he said. “We simply don’t have that foundation, and that’s an additional reason why uptake is slow.”

“My guess is it will be slow adoption,” he added. “I truly believe we will start to see an increase or increase in the use of consultants somewhere in the next two to three years.”

Not regulated enough

While bitcoin ETFs now exist in the U.S. as a regulated investment vehicle, it’s still not always clear if or when advisors can recommend them, according to Douglas Boneparth, founder and president of Bone Fide Wealth in New York City.

“A lot of this still has to do with compliance offices and what the brokerage will allow when it comes to advisors and offering ETFs,” he said. “Just because the ETF was launched doesn’t mean the floodgates were open or that allocation capacity for it was easy.”

Jenkin said some brokerages have approved the purchase of bitcoin ETFs but restrict how much of it can be purchased, and other firms do not allow advisors to sell bitcoin ETFs.

Some say this is due to crypto’s notorious reputation for fraud, scandal and crime – a situation that gets a little cleaner every year but has undoubtedly left a scar on the industry. More point to the lack of regulation in the sector, which increases the chances of consumer complaints, potential lawsuits against brokers and potentially fines from the Financial Industry Regulatory Authority, or FINRA.

“Part of the reason this isn’t popular yet is that there are serious compliance issues in the industry,” Jenkin said. “Many firms are very nervous about the communications that financial advisors are having with their clients about digital assets, and none of them want to have violations with FINRA.”

“Most brokers are risk mitigators,” he added. “They want to allow advisors to do things for clients, but they certainly don’t want the spotlight to be on them to take more risks. That’s why you’re seeing there’s such a slow uptake on this.”

Building trust

Bitcoin and its ETFs need more time on the market to gain trust and adoption by big players like Vanguard, which earlier this year said it has no plans to offer them and will not change its stance unless the asset changes to become less speculative.

“That’s coming,” Boneparth said of customer confidence. This will come with “more time – moving from the early days to the more mature days. We are coming out of years where exchanges failed – this is not Bitcoin’s failure, but it muddies the water [and] people’s trust.”

Until then, the best position consultants can occupy is one where they educate their clients, he added.

“Even though bitcoin ETFs may fundamentally present a less risky and more regulated way of investing in digital assets… the association with bitcoin still tends to deter [clients]said Dorsainvil.

Advisors will likely be further deterred by ether ETFs, given the added complexity of this cryptocurrency’s use cases and functionality. Last week, the Securities and Exchange Commission gave the green light to US exchanges to list Spot Ether ETFswhich many investors predict will also be successful, but perhaps a fraction of what bitcoin ETFs have enjoyed.

“ETFs have made everything very easy for institutions, from pensions to large funds,” said Boneparth. “That’s where we’re seeing most of the flows going into these bitcoin ETFs. … It’s still very complicated at the retail consultant client level.”

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Bitcoin

Grayscale Unveils Bitcoin Mini Trust ETF

Published

4 months ago

31 July, 2024

Chain Feed Staff

Grayscale Unveils Bitcoin Mini Trust ETF

Bitcoin Currency

Grayscale Investments The Bitcoin Mini Trust began trading on Wednesday with a 0.15% expense ratio, offering a lower-cost option for bitcoin exposure in the market.

The Mini Trust, which has the symbol BTC and trades on NYSE Arca, is structured as a spin-off of the Grayscale Bitcoin Trust (GBTC). New shares will be distributed to existing GBTC shareholders with the fund contributing a portion of its bitcoin holdings to the new product. According to a company press releaseBTC’s S-1 registration statement became effective last week.

“The Grayscale team has believed in the transformative potential of Bitcoin since the initial launch of GBTC in 2013, and we are excited to launch the Grayscale Bitcoin Mini Trust to help further lower the barrier to entry for Bitcoin in an SEC-regulated investment vehicle,” said David LaValle, Senior Managing Director and Head of ETFs at Grayscale.

The Bitcoin Mini Trust’s debut comes amid growing interest in ETFs based on the current price of the two largest cryptocurrencies by market cap, bitcoin and ether. Spot bitcoin ETFs have generated nearly $18 billion in inflows since the first ones began trading on Jan. 11, though GBTC has lost nearly $19 billion in assets.

This fund differs from other funds because it is a conversion of an existing fund and has a 1.5% fee, the highest among spot bitcoin products that have received SEC approval this year.

Mini Bitcoin Trust Low Fee

On a Post X On Wednesday, Bloomberg senior ETF analyst Eric Balchunas noted the Bitcoin Mini Trust’s “lowest fee in the category…”

“[Important] to recognize how incredibly cheap 15bps is — about 10x cheaper than spot ETFs in other countries and other vehicles,” Balchunas wrote, adding that this pricing strategy reflects the competitive nature of the U.S. ETF market, which he referred to as the “ETF Terrordome.”

“This is what Terrordome does to fund [cost]. It reaches 1.5% [and] end in 0.15%, how to go from [a] country club to the jungle. But that’s why all the flows are here, investor paradise,” he noted.

Bitcoin was recently trading at around $66,350, virtually flat since U.S. markets opened on Wednesday.

Grayscale also offers two spot Ethereum ETFs, the Grayscale Ethereum Trust (ETHE) and the Grayscale Ethereum (ETH) Mini Trustwhose performance is based on ETHE. ETHE outflows exceeded $1.8 billion in its first six days of trading, while ETH added more than $181 million in the same period, according to Farside. The remaining seven ETFs generated about $1.2 billion in inflows.

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Bitcoin

Bitcoin (BTC) Price Drops Below $65K After FOMC as Middle East Tensions Rise

Published

4 months ago

31 July, 2024

Chain Feed Staff

Bitcoin (BTC) Price Drops Below $65K After FOMC as Middle East Tensions Rise

Cryptocurrencies fell sharply on Wednesday as rising geopolitical risks captivated investors’ attention following the conclusion of the Federal Reserve’s July meeting.

Bitcoin (BTC) fell to $64,500 from around $66,500, where it traded following Federal Reserve Chairman Jerome Powell’s press conference and is down more than 2% in the past 24 hours. Major altcoins including ether (ETH)sunbathing (SUN)Avalanche AVAX (AVAX) and Cardano (ADA) also fell, while Ripple’s XRP saved some of its early gains today. The broad cryptocurrency market benchmark CoinDesk 20 Index was 0.8% lower than 24 hours ago.

The liquidation happened when the New York Times reported that Iran’s leaders have ordered retaliation against Israel over the killing of Hamas leader Ismail Haniyeh in Tehran, raising the risk of a wider conflict in the region.

Earlier today, the Fed left benchmark interest rates unchanged and gave little indication that a widely expected rate cut in September is a given. The Fed’s Powell said that while no decision has been made on a September cut, the “broad sense is that we are getting closer” to cutting rates.

While digital assets suffered losses, most traditional asset classes rose higher during the day. U.S. 10-year bond yields fell 10 basis points, while gold rose 1.5% to $2,450, slightly below its record highs, and WTI crude oil prices rose 5%. Stocks also rallied during the day, with the tech-heavy Nasdaq 100 index rebounding 3% and the S&P 500 closing the session 2.2% higher, led by 12% gains in chipmaker giant Nvidia (NVDA).

The different performances across asset classes could be due to traders’ positioning ahead of the Fed meeting, Zach Pandl, head of research at Grayscale, said in an emailed note.

“Equities may have been slightly underutilized after the recent dip, while bitcoin is coming off a strong period with solid inflows, while gold has recovered after a period of weakness,” he said.

“Overall, the combination of Fed rate cuts, bipartisan focus on cryptocurrency policy issues, and the prospect of a second Trump administration that could advocate for a weaker U.S. dollar should be viewed as very positive for bitcoin,” he concluded.

UPDATE (July 31, 2024, 21:30 UTC): Adds grayscale comments.

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Bitcoin

Donald Trump’s Cryptocurrency Enthusiasm Is Just Another Scam

Published

4 months ago

31 July, 2024

Chain Feed Staff

Donald Trump's Cryptocurrency Enthusiasm Is Just Another Scam

Former US President Donald Trump spoke at the Libertarian National Convention in May and lent his a strong support to crypto: “I will also stop Joe Biden’s crusade to crush crypto. … I will ensure that the future of crypto and the future of bitcoin is made in the US, not taken overseas. I will support the right to self-custody. To the 50 million crypto holders in the country, I say this: With your vote, I will keep Elizabeth Warren and her henchmen out of your bitcoin.”

Trump continued to court the cryptocurrency industry in the months that followed; he he appeared at the Bitcoin 2024 Conference in Nashville this week, along with independent presidential candidate Robert F. Kennedy Jr.’s parting words to Trump — “Have fun with your bitcoin, your cryptocurrency and whatever else you’re playing with” — were less than enthusiastic, but the industry itself remains packed with ardent Trump supporters.

This turnaround came as a surprise, given Trump’s previous strong opposition to cryptocurrency. When Facebook was floating its Libra cryptocurrency in 2019, Trump tweeted: “I am not a fan of Bitcoin and other cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air.” Former national security adviser John Bolton’s White House memoir, The Room Where It Happened, quotes Trump as telling Treasury Secretary Steven Mnuchin: “Don’t be a trade negotiator. Go after Bitcoin.” [for fraud].” In 2021, Trump counted Fox Business that bitcoin “just looks like a scam. … I want the dollar to be the world’s currency.”

Why the change? There doesn’t seem to be any crypto votes. Trump’s “50 million” number comes from a poorly sampled push survey by cryptocurrency exchange Coinbase which claimed 52 million cryptocurrency users in the United States starting in February 2023. But one survey A survey conducted last October by the US Federal Reserve showed that only 7% of adults (about 18.3 million people) admitted to owning or using cryptocurrencies — down from 10% in 2022 and 12% in 2021. Many of these people are likely wallet owners who were left holding the bag after crypto plunged in 2022 — and are not necessarily new fans.

What Trump wants from the cryptocurrency industry is money. The cryptocurrency industry has already raised more than US$ 180 million to run in the 2024 US elections through his super PACs Fairshake, Defend American Jobs and Protect Progress.

Fairshake spent $10 million on taking Rep. Katie Porter in the primary battle for Dianne Feinstein’s California Senate seat by funding Porter’s pro-crypto rival Adam Schiff. This put $2 million to knock out Rep. Jamaal Bowman in the Democratic primary for New York’s 16th District in favor of pro-crypto George Latimer. In the Utah Senate Republican primary, Rep. John Curtis defeated Trent Staggs with the help of $4.7 million from Defend American Jobs. In Alabama’s House District 2, the majority of campaign expenses came from the cryptocurrency industry.

Fairshake is substantially financed by Coinbase, cryptocurrency issuer Ripple Labs, and Silicon Valley venture capital firm Andreessen Horowitz, or a16z. Silicon Valley was awash in cryptocurrencies during the 2021 bubble, and a16z in particular continues to promote blockchain startups to this day — and still holds a huge amount of bubble crypto tokens that he wishes he could cash in on.

Many in Silicon Valley would like an authoritarian who they think will let them run wild with money — while bailing them out in tough times. Indeed, Trump promised Bitcoin 2024 participants that he hold all bitcoins that the United States acquires. (Never mind that it is usually acquired as the proceeds of crime.) Silicon Valley explicitly sees regulation of any kind as its greatest enemy. Three a16z manifestos — “Politics and the Future” It is “The Techno-Optimist Manifesto” and 2024 “The Small Tech Agenda—describe co-founders Marc Andreessen and Ben Horowitz’s demands for a technology-powered capitalism unhindered by regulation or social considerations. They name “experts,” “bureaucracy,” and “social responsibility” as their “enemies.” Their 2024 statement alleges that banks are unfairly cutting off startups from the banking system; these would be crypto companies funded by a16z.

Trump’s vice presidential pick, Senator J.D. Vance, is a former Silicon Valley venture capitalist. He was once employed by Peter Thiel, who bankrolled Vance’s successful 2022 Senate run; Vance has been described as a “Thiel creation”. He has increased support for the Trump ticket among his venture capital associates. Vance is a bitcoin holder and a frequent advocate of encryption. He recently released a draft bill to review how the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) control crypto assets. In 2023, he circulated a bill to prevent banks from cutting out cryptocurrency exchanges.

Minimal regulation has been tried before. It led to the wild exuberance of the 1920s, which ended with the Black Tuesday crash of 1929 and the Great Depression of the 1930s. Regulators like the SEC were put in place during this era to protect investors and transform the securities market from a jungle into a well-tended garden, leading to many prosperous and stable decades that followed.

Crypto provides the opposite of a stable and functional system; it is a practical example of how a lack of regulation allows opportunists and scammers to cause large-scale disasters. The 2022 Crypto Crash repeated the 2008 financial crisis in miniature. FTX’s Sam Bankman-Fried was feted as a financial prodigy who would perform economic miracles if you just gave him carte blanche; he ended up stealing billions of dollars of customers’ money, destroying the lives of ordinary people, and is now in a prison cell.

U.S. regulators have long been concerned about the prospect of cryptocurrency contagion to the broader economy. Criminal money laundering is rampant in cryptocurrency; even the Trump administration has made rules in December 2020 to reduce the risk of money laundering from crypto. Meanwhile, the crypto industry has persistently tried to infiltrate systemically risky corners of the economy, such as pension funds.

Four U.S. banks collapsed during the 2023 banking crisis, the first since 2020. Two of them, Silvergate Bank and Signature Bank, were deeply embedded in the crypto world — Silvergate in particular appears to have collapsed directly from its heavy reliance on FTX and failed a few months after that. Silicon Valley Bank was not involved in crypto but collapsed due to a run on the bench due to panic among venture capital deposit holders, particularly Thiel’s Founders Fund.

Project 2025the Heritage Foundation mammoth conservative wish list The plan, which Trump and Vance have both endorsed and tried to distance themselves from at various times, emphasizes the importance of party loyalists, noting especially financial regulation. The plan recommends replacing as much of the federal bureaucracy as possible with loyalists and “trusted” career officials rather than nonpartisan “experts.” Vance defended in 2021 that Trump should “fire every mid-level bureaucrat, every civil servant in the administrative state” and “replace them with our people.” Loyalty will likely trump competence.

Crypto is barely mentioned directly in Project 2025 — suggesting it has little active support among the broader conservative coalition. But near the end of the manifesto is a plan to dismantle most U.S. financial regulations and investor protections put in place since the 1930s, suggesting the exemption the crypto industry seeks from current SEC and CFTC regulations.

Bitcoin, the first cryptocurrency, started as an ideological project to promote a strange variant of Murray Rothbard’s anarcho-capitalism and the Austrian gold-backed economy—the kind we abandoned to escape the Great Depression. Crypto quickly co-opted the “end of the Fed” and “establishment elites” conspiracy theories of the John Birch Society and Eustace Mullins. It’s a way for billionaire capitalists like Thiel, Andreessen and Elon Musk to claim they’re not part of the so-called elite.

If a second Trump administration were to limp along with financial regulators and allow cryptocurrencies to have free rein, it could help foster the collapse of the U.S. economy that bitcoin claimed to prevent. But Trump is more likely to be happy to take the crypto money and run.

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Bitcoin

Trump’s Bitcoin (BTC) Reserve Plan Seen as Just a ‘Small Token Stash’

Published

4 months ago

31 July, 2024

Chain Feed Staff

Trump's Bitcoin (BTC) Reserve Plan Seen as Just a 'Small Token Stash'

Donald Trump’s recent promise to create a “strategic national stockpile of Bitcoin” may not turn out to be as big a commitment as the hype surrounding the announcement makes it seem.

“Trump’s proposal is extremely modest,” said George Selgin, director emeritus of the Center for Monetary and Financial Alternatives at the Cato Institutea Washington-based public policy group. “It doesn’t have much economic implication.”

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