In the bustling world of financial advising, where traditional assets have long been the stalwarts of investment portfolios, crypto assets are becoming increasingly significant for registered investment advisors (RIAs) and broker-dealer (BD) advisors. Recently, Wealth Advisor Managing Editor Scott Martin and Matthew Hougan, Chief Investment Officer at Bitwise Asset Management, discussed the critical importance for advisors to understand and engage with the world of cryptocurrency and the unique position of Bitwise in the exchange-traded fund (ETF) space.
Bitwise is committed to serving as a bridge between the complexities of cryptocurrency and the advisor community. Hougan emphasizes the firm’s focus on crafting ETFs and educational resources tailored to the needs of financial advisors and family offices. Bitwise’s ethos, as he elaborates, revolves around the singular pursuit of crypto asset management, distinguishing the firm within the space as a dedicated ally for advisors aiming to integrate crypto into their client’s portfolios. With a track record of six years, Hougan expresses pride in Bitwise’s dedication to this niche market, even contributing to the CFA Institute’s inaugural guide to crypto.
The rationale for advisors to become conversant with cryptocurrency is threefold, according to Hougan. First, many clients are already engaged with crypto independently, and incorporating this interest within an advisory framework could streamline their investments and potentially mitigate risks associated with the highly volatile crypto markets. Second, the anticipation of a spot Bitcoin ETF, which has been in development for more than a decade, necessitates an informed perspective, especially as major players like BlackRock enter the conversation. Third, Hougan cites the unparalleled performance of crypto assets, noting their top-tier returns and low correlation to traditional equities across various time frames.
Given the volatile nature of crypto, Hougan suggests a moderate allocation of about 5% in client portfolios, a figure derived from asset allocation models enthusiastic about Bitcoin’s historic returns. Higher percentage allocations could disproportionately affect portfolio volatility, he cautions.
Advisors’ ability to offer crypto services to retain clients and add value to their portfolios, especially with the potential launch of a Bitcoin ETF, depends on their understanding of the characteristics of different crypto assets. Hougan differentiates between Bitcoin and Ethereum, not just as cryptocurrencies but as foundational technologies with distinct functionalities.
He illuminates Bitcoin’s design, optimized for security and wealth storage, likening it to a digital form of gold, while pointing out Ethereum’s programmable infrastructure, which enables a wide array of decentralized applications. Hougan predicts that Bitcoin and Ethereum may eventually exhibit divergent return characteristics, with Bitcoin resembling safe-haven assets and Ethereum mirroring tech stocks.
For advisors seeking a focused entry point into the crypto ETF space, Hougan recommends Bitwise’s ticker symbol BTOP. This ETF is designed to provide 50:50 exposure to both Bitcoin and Ethereum through futures contracts, allowing investors to participate in the crypto market without having to pick individual winners. This ETF aligns with Bitwise’s philosophy of making crypto accessible and manageable for advisors and their clients.
Hougan encourages advisors to reach out to Bitwise for support and with questions regarding crypto investments, reinforcing Bitwise’s commitment to being a resource for the advisor community. As crypto assets gain mainstream traction and present new opportunities, advisors would do well to adopt an informed approach to responding to the shifting paradigms of wealth management.
