Everyone Has Crypto FOMO, But Does It Belong in Your Portfolio?

So far, US regulators have turned down applications for ETFs that would hold cryptocurrencies directly. Securities and Exchange Commission head Gary Gensler recently said the futures market is more regulated, making it a safer bet for investors.

Other fund vehicles hold crypto directly, but they struggle with other structural issues and have higher fees that weigh on returns.

Grayscale Bitcoin Trust, the largest Bitcoin vehicle with $27 billion in assets, costs 2 percent and trades on the over-the-counter market. But these trusts don’t have the flexibility of regular mutual funds and ETFs to balance supply and demand, so their stock prices can deviate from Bitcoin’s price. Another provider, Osprey Bitcoin Trust, became available in February (for a fraction of Grayscale’s cost) but faces the same challenges.

Grayscale, Bitwise, and other providers have said moving to an ETF structure would solve these problems, but they haven’t received the green light from regulators, who fear the underlying coins could be rigged and scammed. (However, ETFs that hold actual coins also exist elsewhere – the Fidelity Advantage Bitcoin ETF is available in Canada, for example.)

Investors looking for professional advice may find that more financial advisors now have first-hand experience with cryptocurrencies — some of which may be driven by a desire to educate themselves and answer questions with more confidence. According to the Bitwise/ETF Trends survey, which surveyed 619 advisors, about 47 percent of advisors said they owned crypto assets in 2021. That was almost double the previous year’s result.

One advisor, Ritholtz Wealth Management, has gone as far as launching a crypto-related index with partners, offering broad exposure to its clients through a separately managed account. It charges 0.50 percent annually and has a 0.70 percent filing fee.

Crypto is “hard to ignore at this point,” said Michael Batnick, director of research at Ritholtz.

Cristina Guglielmetti, a Brooklyn-based financial advisor, called the vast majority of her clients “core crypto-savvy people”: “Mid-40s, familiar with tech/pop culture – it’s all around them.” She’s trying to understand why they want crypto, while ensuring they are aware of its place in their investment mix. Everyone Has Crypto FOMO, But Does It Belong in Your Portfolio?

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