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The recent launch of spot Bitcoin and Ether exchange-traded funds (ETFs) in the United States has generated significant interest, but crypto has yet to break out beyond its core investor base. The approximately $60 billion invested in these funds this year primarily comes from crypto-native retail investors and hedge funds. To expand further, the sector must win over Registered Investment Advisers (RIAs), the financial professionals who manage everyday investors' portfolios.
The Importance of RIAs in Crypto Adoption
Registered Investment Advisers (RIAs) hold a pivotal role in the future of cryptocurrency investment. With the U.S. ETF market valued at around $9 trillion, RIAs are anticipated to drive a substantial portion of ETF investments. Federico Brokate, head of U.S. business at crypto ETF issuer 21Shares, emphasizes that the majority of ETF flows in the coming years will likely come from RIAs.
Despite the potential, many RIAs remain skeptical about integrating cryptocurrency into their investment strategies. According to a 2024 survey by Cerulli Associates, more than 55% of advisers have no plans to discuss cryptocurrency with their clients, and only 2.6% are currently recommending crypto investments. The hesitation among RIAs is largely due to concerns about market volatility and regulatory uncertainty.
Market Volatility and Regulatory Concerns
Crypto market volatility is a significant deterrent for RIAs. Bryan Armour, director of passive strategies research at Morningstar, notes that many advisers are wary of the possibility of sharp price declines, which could impact clients' portfolios. Additionally, regulatory ambiguity surrounding crypto assets further complicates their adoption. Will McGough, director of investments at Prime Capital Financial, points out that while there is increased client interest in crypto ETFs, the firm has not yet incorporated these assets into their portfolios.
Growing Interest in Crypto ETFs
Despite these challenges, there is a growing interest in crypto ETFs among RIAs. As client demand for cryptocurrency investments increases, around a quarter of RIAs are now exploring crypto options, with nearly 18% expected to do so soon. According to Roxanna Islam of VettaFi, there is notable interest in spot Bitcoin ETFs, especially among larger, liquid products like the iShares Bitcoin Trust (IBIT) and Fidelity’s Wise Origin Bitcoin Fund (FBTC).
Ether ETFs are also gaining traction, with advisers finding them easier to value and explain to clients compared to Bitcoin. Kyle DaCruz of VanEck highlights that Ethereum's functionality as a blockchain network producing cash flow resembles a technology stock, making it more accessible for advisers to discuss with clients.
Challenges and Opportunities Ahead
Currently, crypto ETFs are still largely inaccessible to the largest financial advisories, known as wirehouses, which manage around $1.2 trillion in investor funds. These institutions, including major names like Bank of America, JPMorgan Chase, and Wells Fargo, have stringent compliance processes that have so far limited their involvement in crypto ETFs. However, there is potential for change as these firms explore integrating Bitcoin into their portfolio models.
The inclusion of staking in Ethereum ETFs could also serve as a significant growth catalyst. Staking, which involves depositing ETH as collateral with a validator in exchange for network fees, has been blocked by U.S. regulators due to liquidity concerns. Yet, issuers remain optimistic about finding a regulatory path forward. As Brokate suggests, the progression seen in other global markets may eventually lead to the inclusion of staking in U.S. ETFs.
The Path Forward for Crypto Adoption
Ultimately, the adoption of cryptocurrencies among RIAs hinges on increased legitimacy and trust, which the launch of ETFs is helping to establish. The availability of digital assets through traditional investment channels is expected to lead to broader acceptance over time. McGough notes that the integration of crypto assets into regular investment portfolios will likely drive greater adoption as advisers respond to client demand.
As the market evolves, the role of RIAs in facilitating crypto adoption will be crucial. Their decision to incorporate or overlook cryptocurrency investments will significantly impact the broader acceptance and growth of the sector. For now, the focus remains on overcoming skepticism and demonstrating the value of crypto investments in a way that aligns with the needs and concerns of traditional financial advisers.
