Direct exposure to crypto might be better than ETFs, executives say
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Bitcoin exchange traded funds may be more valuable to financial advisers and their clients than they are to other groups of investors, industry executives said last week.
Despite the allure of a bitcoin ETF, direct exposure to cryptocurrency might work better for a wider group of Americans, said Tyrone Ross, chief executive of tech company Onramp Invest, at a panel last week.
For example, stablecoins, which are typically backed by fiat currency or gold, would be able to facilitate a faster transfer of money than most financial institutions, he explained. Such a feature was valuable to Americans who were in dire situations and needed money immediately, he added.
“I say this growing up in a home that was unbanked — crypto is a godsend to those that are underserved,” Ross said.
However, many retail investors did not own cryptocurrency yet because there was no ETF that would help them do so, said Matt Hougan, chief investment officer at Bitwise Asset Management, at the panel hosted by Morningstar. An ETF would also help investors hold bitcoin safely, as they were less likely to misplace their passwords or get hacked, he added.
“The beauty of ETFs is that they plug in seamlessly into the way financial advisers work,” Hougan said. “That’s why it’ll be a game changer and open up the market significantly.”
The Securities and Exchange Commission has yet to approve a bitcoin ETF. The regulator also took years to come to terms with non-transparent ETFs and even physically backed gold ETFs, Hougan noted.
“No one has ever accused the SEC of being a Lamborghini,” he said.
More than 10 fund providers are waiting for their proposed bitcoin ETFs to be approved. But SEC chair Gary Gensler has indicated that the regulator would be more comfortable approving funds that invest in bitcoin futures, rather than those that invest in the underlying coin.
Regulators were concerned about market manipulation, Hougan said. They held cryptocurrency to higher standards because they were concerned that a lot of people came into the space when it was still very risky, he added.
But investors were already likely to invest in cryptocurrency even without the help of their advisers, Hougan said. So for advisers to have earnest conversations with clients about cryptocurrency, they needed first to understand the technology behind it, he said.
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Bitcoin’s underlying blockchain technology can only do a few actions, such as send or receive the cryptocurrency, Hougan explained. Ethereum, meanwhile, could be programmed to act as a lending agent, function as a stock exchange, and even host digital art. But bitcoin was more valuable than ethereum because its programming interface was more secure than ethereum’s, and because the latter was a younger technology, he said.
“We need to break the idea that these are currencies and [instead] need to think of them as technologies that enable us to do new things,” he said.
“And then you can either evaluate those technologies and decide what you think is best, or you can buy a diversified basket of them in an index.”
*Ignites is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignites.com.