Cryptocurrency, once seen as a risky and speculative investment, is now firmly integrated into mainstream financial discussions. Crypto exchange-traded funds (ETFs) are at the forefront of this transformation, gaining traction among U.S. financial advisors. In fact, 57% of financial advisors are planning to increase their allocations in crypto ETFs in 2024, with very few planning to reduce their positions. This marks a major shift in the industry, signifying that cryptocurrency is no longer considered a reputational risk, but an essential part of diversified investment strategies.
Let’s dive deeper into why crypto ETFs are on the rise, what financial advisors are focusing on, and how this trend is shaping the future of investing.
The Rise of Crypto ETFs: A New Era for U.S. Financial Advisors
Gone are the days when cryptocurrencies were a fringe asset class. With crypto ETFs now a significant component of the investment landscape, financial advisors are embracing these funds as viable options for their clients. At the Exchange Conference in Las Vegas, TMX VettaFi experts revealed that the majority of U.S. financial advisors are not only talking about crypto but are also preparing to increase their investments in crypto ETFs.
According to the survey results, 57% of financial advisors plan on boosting their crypto ETF allocations in 2024, while only 1% plan to decrease their exposure. This shift indicates that crypto is no longer a controversial asset class; it has become a reputable and strategic investment option for financial professionals.
Why Advisors are Investing in Crypto ETFs
Crypto ETFs are investment funds that trade on exchanges, similar to stocks, and they allow investors to gain exposure to cryptocurrencies without owning the underlying digital assets directly. These ETFs hold crypto-related assets, including spot bitcoin, ether, and other tokens, making them an accessible investment vehicle for traditional investors.
Here are some of the key reasons why U.S. financial advisors are favouring crypto ETFs:
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Reputational Risk Gone: A few years ago, crypto was seen as a high-risk, speculative investment with potential reputational issues. However, with clearer regulatory frameworks and increased institutional adoption, the reputational risk surrounding crypto has significantly diminished. Cinthia Murphy, senior investment strategist at TMX VettaFi, remarked, “Today, there’s no advisor that can’t at least hold a basic conversation in crypto.”
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Diversification and Growth: Advisors understand that diversification is key to a well-rounded portfolio. By adding crypto ETFs to their clients’ portfolios, they can tap into the growth potential of the crypto market while maintaining exposure to more traditional assets. Crypto equity ETFs, for example, focus on publicly traded companies with exposure to the crypto sector, offering a familiar approach for investors.
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Spot and Multi-Token ETFs Gaining Traction: Advisors are also becoming more interested in spot crypto ETFs and multi-token funds. Spot ETFs track the price of specific cryptocurrencies like bitcoin or ether, while multi-token ETFs hold a basket of different tokens, offering even greater diversification. These ETFs have captured the interest of 22% and 19% of advisors, respectively, as they allow for broader exposure to the fast-evolving crypto market.
Which Crypto ETFs are Gaining Momentum?
Among the growing selection of crypto ETFs, there are a few specific types that are gaining significant attention from U.S. financial advisors:
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Crypto Equity ETFs: These funds invest in publicly traded companies with exposure to the crypto industry. Notable companies in these ETFs include Tesla and MicroStrategy, both of which have significant investments in bitcoin. Advisors find these equity-linked ETFs easier to understand and incorporate into clients’ portfolios, as they provide indirect exposure to the crypto market without directly investing in cryptocurrencies.
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Spot Crypto ETFs: These ETFs directly track the price of a specific cryptocurrency, like bitcoin (BTC) or ether (ETH). Since the U.S. Securities and Exchange Commission (SEC) approved spot bitcoin ETFs in January 2024, these funds have become an attractive choice for advisors looking for direct exposure to digital assets.
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Multi-Token Crypto ETFs: These funds hold a basket of different cryptocurrencies, providing investors with exposure to several tokens instead of just one. About 19% of advisors in the survey indicated an interest in these funds, as they provide broader diversification in a highly volatile market.
Crypto ETFs and Institutional Adoption
The shift towards crypto ETFs reflects the broader trend of increasing institutional adoption of cryptocurrency. The approval of spot bitcoin ETFs by the SEC in 2024 signalled a more friendly regulatory stance, paving the way for more institutional players to enter the market.
Moreover, financial advisors are increasingly comfortable with the transparency and regulatory oversight that comes with ETFs. This is especially true for crypto equity ETFs, which allow investors to access the crypto space through well-established, publicly traded companies like Tesla.
This shift also aligns with broader trends in the financial markets, where traditional asset managers are incorporating crypto into their portfolios to meet growing demand from clients who want to tap into the potential of digital assets.
The Future of Crypto ETFs: What’s Next?
The crypto ETF space is still evolving, and there are several exciting developments to watch for in 2024 and beyond:
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New ETF Launches: Several issuers are looking to bring more spot crypto ETFs to market, including those that track Solana (SOL), XRP, and Litecoin (LTC). These ETFs are still awaiting approval from the SEC, but their potential to offer more diversified exposure to different digital assets could make them highly attractive to investors.
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Managed Crypto ETFs: Some crypto ETFs are designed with downside protection strategies, such as allocating a portion of assets to U.S. Treasuries to offset the volatility of digital currencies. These managed funds are gaining interest from financial advisors who want to minimise the risk associated with price swings in the crypto market.
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Regulatory Clarity: As regulatory clarity improves, advisors will likely gain even more confidence in adding crypto ETFs to their clients’ portfolios. With clearer rules from the SEC and other regulatory bodies, advisors will have greater certainty about how these assets should be treated and taxed.
Conclusion: The Growing Popularity of Crypto ETFs
The rise of crypto ETFs among U.S. financial advisors reflects a fundamental shift in how cryptocurrency is viewed in the investment world. Once seen as a speculative asset with reputational risks, crypto is now firmly positioned as a legitimate investment class. As regulatory frameworks continue to evolve, financial advisors are increasingly confident in adding crypto ETFs to their clients’ portfolios, seeking diversification and exposure to the growth potential of digital assets.
If you’re a financial advisor, investor, or someone interested in crypto, the growing adoption of crypto ETFs is a trend you won’t want to miss. The landscape is shifting fast, and those who stay informed will be well-positioned to capitalise on the opportunities ahead.
Photo credit: Coinmama
