Advisors ‘cautious’ with Bitcoin ETF adoption, says BlackRock exec

BlackRock’s chief investment officer for ETF and index investments, Samara Cohen, has hinted that financial advisors remain “wary” of adopting spot Bitcoin (BTC) exchange-traded funds (ETFs) despite the success recorded by the investment vehicle. 

Despite attracting over $50 billion in investments since going live in January 2024, Bitcoin ETFs still face a sluggish uptake among financial advisors.

According to Cohen, approximately 80% of Bitcoin ETF purchases originate from self-directed investors who have made their own allocation through an online brokerage account.

Cohen has highlighted that financial advisors remain cautious of joining the spot Bitcoin ETF bandwagon due to their fiduciary responsibilities to clients.

Given Bitcoin’s history of significant price volatility, advisors are rigorously analyzing its role in portfolios and determining appropriate allocations based on investor risk tolerance and liquidity needs.

She emphasized that this process of evaluating data and risk analytics is crucial for advisors to fulfill their duties effectively amid ongoing uncertainties in the market.

The flagship cryptocurrency has experienced significant fluctuations over time, posing a substantial risk for potential investors. Furthermore, the relatively brief history of Bitcoin ETFs contributes to financial advisors’ skepticism, as the limited track record raises doubts about their reliability and long-term performance, she notes.

Another significant deterrent is the regulatory landscape. The financial sector continues to grapple with establishing a clear regulatory framework for cryptocurrencies, which introduces uncertainty and caution among financial advisors. The absence of definitive guidelines and the possibility of regulatory adjustments further complicates the recommendation of Bitcoin ETFs to clients.

Despite these challenges, Bitcoin ETFs hold promise as a conduit between cryptocurrency and conventional finance. They offer a regulated and more accessible avenue for investors to participate in the cryptocurrency market. 

Nevertheless, the sluggish acceptance among financial advisors underscores the need for enhanced education and awareness to surmount existing barriers.

Regulatory shifts

The U.S. Securities and Exchange Commission’s (SEC) approval of Bitcoin ETFs had a profound impact on the cryptocurrency market, especially with issuers like ARK and 21Shares.

Prominent issuers who secured Bitcoin ETF approvals are now seeking the same for Ethereum (ETH). This development has captured investor attention as they seek exposure to the second-largest cryptocurrency by market capitalization.

However, the SEC has expressed caution amidst this enthusiasm. SEC Chair Gary Gensler has emphasized that most crypto assets are viewed as investment contracts and thus fall under federal securities laws. 

This stance is a departure from the SEC’s previous approach, which focused primarily on the commodities and futures aspects of cryptocurrencies.

This regulatory classification adds complexity to the approval process for Ethereum ETFs, which operate on a different protocol compared to Bitcoin.

Still, Gensler expects to fully approve spot Ether ETFs by the end of summer 2024.

The SEC had previously given initial approval to a group of ETFs, and the final registration requirements, known as S-1 filings, are currently being processed at the staff level. Once these filings receive approval, the new ETFs can be listed, providing the market with easy-to-trade funds holding actual Ether, similar to the previously established Bitcoin spot ETFs.

During a budget hearing before the Senate Appropriations Committee, Gensler highlighted the smooth progress in the registration process for these ETFs. He noted that individual issuers are diligently advancing through the registration stages, proceeding efficiently.