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BlackRock’s chief investment officer for ETF and index investments, Samara Cohen, has noted that financial advisors remain cautious about adopting spot Bitcoin (BTC) exchange-traded funds (ETFs) despite their success. Bitcoin ETFs have attracted over $50 billion in investments since January 2024, yet financial advisors are slow to embrace them.
Financial Advisors’ Caution
According to Cohen, approximately 80% of Bitcoin ETF purchases come from self-directed investors using online brokerage accounts. Financial advisors are wary 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. This process of evaluating data and risk analytics is crucial for advisors to fulfill their duties effectively amid ongoing market uncertainties.
“Advisors are cautious about Bitcoin ETFs due to their fiduciary responsibilities and Bitcoin’s volatility,” Cohen emphasized.
Volatility and Skepticism
The flagship cryptocurrency has experienced significant fluctuations over time, posing a substantial risk for potential investors. The relatively brief history of Bitcoin ETFs also contributes to financial advisors’ skepticism. The limited track record raises doubts about their reliability and long-term performance.
Regulatory Landscape
Another significant deterrent is the regulatory landscape. The financial sector continues to grapple with establishing a clear regulatory framework for cryptocurrencies, introducing 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.
“The regulatory landscape is a major hurdle for Bitcoin ETFs,” Cohen noted.
Promise and Challenges
Despite these challenges, Bitcoin ETFs offer a regulated and more accessible avenue for investors to participate in the cryptocurrency market. However, the slow acceptance among financial advisors underscores the need for enhanced education and awareness to overcome existing barriers.
Regulatory Shifts and Ethereum ETFs
The U.S. Securities and Exchange Commission’s (SEC) approval of Bitcoin ETFs had a significant impact on the cryptocurrency market. 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.
SEC’s Stance
SEC Chair Gary Gensler has emphasized that most crypto assets are viewed as investment contracts and thus fall under federal securities laws. This regulatory classification adds complexity to the approval process for Ethereum ETFs, which operate on a different protocol compared to Bitcoin. However, Gensler expects to fully approve spot Ether ETFs by the end of summer 2024.
“The SEC is making progress in the registration process for these ETFs,” Gensler highlighted during a budget hearing before the Senate Appropriations Committee.
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. 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.
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