RIAs have been presented with a new opportunity to blend Bitcoin into their investment strategies. Read on to learn more about what to do now that the Spot Bitcoin ETFs have been approved.
Q: What is a Spot Bitcoin ETF and why is it important?
A: A Spot Bitcoin ETF (BTC ETF) approved by the SEC introduces a new way for RIAs to integrate digital assets into client portfolios and represents a critical moment in time where Bitcoin becomes mainstream. There were 11 applications filed coming from traditional institutions like BlackRock and Fidelity, in addition to crypto native companies like Gemini and Grayscale. For many, this opens the door to the world of digital assets, mitigating risks and challenges, real or perceived.
These BTC ETFs are now regulated by the SEC — the same way that stocks, bonds, mutual funds, and other ETFs on the market are today — allowing investors a certain peace of mind and protection. Clients will now have questions for their advisors, who in turn need to be educated and prepared to answer them.
Q: How is this different from Bitcoin or existing Bitcoin related offerings?
A: Because BTC ETFs would directly hold Bitcoin, their price would correlate more closely with the spot price of Bitcoin, unlike the current futures-based ETFs that exist. BTC ETFs may also offer different or lower fee structures when compared to other securities or direct ownership of the digital asset.
One nuance to all BTC ETFs is that investors must contribute cash to the fund, no “in kind” transactions can occur. This means that the manager must use cash to purchase Bitcoin on the open market which may cause tracking error or “slippage” to the actual spot Bitcoin price due to potential transaction fees, liquidity or market conditions at the time, etc.
Q: What should RIAs do now?
A: RIAs have a unique opportunity to expand their offerings and cater to clients’ growing interest in digital assets. Consider the following as you work to create a disciplined long-term investment plan for clients who want to gain exposure:
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Learn more about BTC ETFs, Bitcoin and their impacts on clients’ portfolios and performance:
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Compare and contrast BTC ETF offerings to ensure issuer, fees and track record align with your practice
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Understand the benefits and limitations of investing in BTC ETFs — while regulated and potentially cost effective, BTC ETFs will not provide direct ownership to the actual digital asset
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Understand the benefits and limitations of direct ownership — direct ownership provides greater control although it may be perceived as complex due to storage and security management
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Understand the tax implications and reporting nuances for your clients
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Educate your clients about Bitcoin and digital assets as a whole, including their benefits and challenges
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Engage with any 3rd party asset allocation managers or sub-advisers regarding their approach to adding BTC ETFs to model portfolios to avoid unintended exposure for clients
All of this also comes with the responsibility to educate your advisory team, build an investment thesis, understand how BTC ETFs fit into client portfolios, develop a go-to-market strategy, and construct a framework for ongoing research and monitoring of Bitcoin and the digital asset markets to be able to effectively manage client portfolios.
Q: What if my clients would benefit from direct ownership of digital assets?
A: The choice to invest in Bitcoin through ETFs or direct ownership depends on your clients’ individual circumstances. If your clients would benefit from direct ownership, BitGo offers the leading digital asset TAMP (turnkey asset management platform) to help RIAs broaden their clients portfolios to include digital assets. With distinct advantages such as qualified custody through BitGo Trust and a robust platform that can simplify operations with features such as bulk trade execution, portfolio rebalancing and comprehensive dashboards, BitGo’s Platform for Wealth Management helps RIAs enhance their clients’ digital asset experience.
To learn more, visit our website.
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BitGo is the digital asset infrastructure company, delivering custody, wallets, staking, trading, financing, and settlement services from regulated cold storage. Since our founding in 2013, we have been focused on accelerating the transition of the financial system to a digital asset economy. With a global presence and multiple regulated entities, BitGo serves thousands of institutions, including many of the industry's top brands, exchanges, and platforms, and millions of retail investors worldwide. For more information, visit www.bitgo.com.
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