The approval of spot bitcoin exchange-traded funds (ETFs) is expected to usher in substantial investment inflows, opening doors for large wealth managers to access cryptocurrency.
In a significant development, the approval of spot bitcoin exchange-traded funds (ETFs) is expected to usher in substantial investment inflows, opening doors for large wealth managers to access cryptocurrency. Analysts at Standard Chartered anticipate fund inflows ranging from $50 billion to $100 billion in 2024.
This marks a groundbreaking opportunity for major players in the wealth management industry, valued at $30 trillion. The approval of bitcoin ETFs, now trading in U.S. public markets, is seen as a game-changer, providing a gateway for money managers who were previously unable to enter the crypto space.
“Bitcoin is beginning to become a benchmark asset for the younger generation,” notes Anthony Pompliano, founder of Pomp Investments. He emphasizes the importance of adding this new benchmark to asset allocations to keep up with evolving investment trends.
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The impact of this development is reflected in Bitcoin’s recent price surge, reaching as high as $49,000. This surge comes after a 150% increase in value last year, rebounding from a challenging market in 2022. However, large portions of the investment community missed out on the 2023 rally due to cautious guidance from financial institutions and regulatory concerns.
With the Securities and Exchange Commission’s (SEC) recent approval of spot bitcoin ETFs, investors can now access bitcoin in a manner similar to traditional stock and bond index funds. While SEC Chair Gary Gensler continues to issue warnings, the approval has triggered increased activity in the crypto market.
Various financial institutions are making strategic moves to capitalize on the evolving landscape. Mutual fund manager Advisors Preferred Trust, for example, plans to invest up to 15% of total assets for indirect bitcoin exposure through funds and futures contracts.
Passive funds are actively seeking ways to enhance performance, and Bitwise Asset Management, among the 11 issuers granted initial approval for a bitcoin product, is targeting financial advisors and family offices. Their Bitwise Bitcoin ETF, with a low fee of 0.2% of holdings, aims to capture a significant share of the market.
A survey conducted in collaboration with VettaFi revealed that 88% of financial advisors interested in purchasing bitcoin were waiting for the approval of spot bitcoin ETFs. Among those already investing in crypto, large allocations (more than 3% of a portfolio) more than doubled to 47% in 2023.
The introduction of low-cost bitcoin ETFs is expected to simplify investment processes for the majority of individuals. Early data from Robinhood indicates that 81% of bitcoin ETF trading volume in the first week was from individual accounts, with the remainder in retirement accounts.
Even before the SEC’s announcement, the 2022 CFA Institute Investor Trust Study found that 94% of state and local pension plans already had some exposure to crypto. The new ETFs could provide additional legitimacy and lower costs for retirement plans seeking increased allocation to cryptocurrency.
Financial firms offer varying advice on entering this space, with some suggesting a gradual shift from 0% to 1% bitcoin allocation for optimal portfolio improvement. The evolving market dynamics will likely attract funds with a focus on high-growth tech stocks and, according to experts, could also find a place in commodity-based portfolios as a form of digital gold.