Spotlight on spot bitcoin ETFs: a new era of access

• Since its inception in 2009, bitcoin's market capitalization has soared past $1T, and the emergence of over 20,000 other cryptoassets over the same period has contributed an additional ~$1T to the cryptoasset market's overall value.¹
• The SEC recently approved the issuance of spot bitcoin ETFs, providing the opportunity for convenient access to this emerging asset.
• The recent developments in bitcoin access allow advisors to modernize their practice and appeal to a new generation of clients.
• BlackRock has the tools to help advisors think about bitcoin and its impacts on the portfolio.

So what is bitcoin? Bitcoin is a digital currency that enables instant peer-to-peer transfer of value globally without the need for intermediaries (like banks) and at next-to-no-cost. Instead, transactions are sent using blockchain technology, a public ledger that records and verifies transactions securely. All one truly needs to access bitcoin is a device with an internet connection.

In a class of its own, bitcoin has consistently dominated over 20,000 crypto challengers, many of which have struggled to gain enduring traction across market cycles without a clear, compelling use case. But bitcoin, as the original cryptoasset and with a finite supply of 21 million coins, has often been likened to “digital gold”, and represents the first internet-native monetary instrument to gain global adoption.² Bitcoin’s scarce, non-sovereign, global and decentralized nature means bitcoin may hold a certain degree of insulation from risks such as currency debasement, financial system distress, or global geopolitical risks – in a similar manner to how gold is often viewed by investors. These properties have resulted in both gold and bitcoin experiencing a low correlation to U.S. stocks, over the longer-term (Figure 1).

Declining trust in institutions
In many countries, falling confidence in governments, financial institutions, and traditional monetary systems has driven people towards decentralized solutions that do not require trusted third parties.³

Economic digitalization
Digitalization is driving transformation across economic sectors, with a meaningful impact on markets.

Demographic dynamics
Compared to Baby Boomers, younger generations of investors disproportionately hold more cryptoassets.⁴

Maturing infrastructure
Maturation of digital assets infrastructure has eased barriers of entry.⁵

Until now, if investors wanted access to the spot (or current) price of bitcoin, they had to open an account on a crypto exchange – a burdensome process for many investors.

The recent SEC approval of spot bitcoin ETFs can allow for increased adoption within some of the deepest pools of assets in the wealth management industry.

So how can spot bitcoin ETFs benefit your clients?

1. Access: Clients can access bitcoin in their traditional brokerage accounts.

2. Convenience: Advisors and their clients bypass the operational burdens associated with holding bitcoin directly and potentially high trading costs while streamlining tax reporting and holistic portfolio analysis.

3. Cost: Investors benefit from lower trading and custody costs through economies of scale.

Bitcoin has become too big to ignore as ETFs expand access and digital assets gain prominence as an emerging asset. When you consider adding bitcoin to a client’s portfolio, it is important to understand how bitcoin functions alongside “traditional” asset classes to consider if and how much exposure a portfolio should have.

Bitcoin has outperformed other major asset classes in 7 of the last 10 calendar years (Figure 2). This massive price movement has equated to significant volatility and drawdowns. Along with historically strong returns and high volatility, bitcoin has come with the benefit of low (0.2) long-term correlation to U.S. stocks.⁶

Bitcoin's volatility remains elevated but has decreased as the value of bitcoin has risen, now sitting at around 50% (Figure 3). To put bitcoin’s volatility in context, various popular individual stocks experienced similar volatility levels around 50% over the same time period. Those with similar volatility levels included tech giants like Tesla (TSLA), Nvidia (NVDA), Meta (META), and Advanced Micro Devices (AMD), as well as non-tech stocks such as Crispr Therapeutics (CRSP), Range Resources (RRC), and Norwegian Cruise Lines (NCLH).⁷

The existence of spot bitcoin ETFs can help financial professionals seeking to differentiate their practice, appeal to the next generation of investors, and evaluate their client’s portfolios holistically.

Recapture assets held away. There are ~$960B of held-away cryptoassets;⁸ 80% of bitcoin holders would prefer to hold through their financial institution.⁹

Appeal to the next generation of wealth. 83% of millennial millionaires hold cryptocurrencies, compared to just 4% of baby boomer millionaires.¹⁰ This is an opportunity for advisors to evolve their practice to appeal to the next generation of HNW clients.

Think about the whole portfolio. Adding any new asset class to your portfolio, especially bitcoin, gives you the ability to help your clients understand an increasingly important contributor to whole portfolio risk and return.

We can help advisors think about bitcoin, a growing asset, in the context of their clients’ portfolios with our tools like 360° Evaluator. Use 360° Evaluator to see how bitcoin works in the context of your portfolio and objectively analyze your portfolio across key attributes like exposure breakdowns, expenses, risk factors and much more.

BlackRock was founded as a fiduciary to our clients.  It’s our goal to bring investment choice and greater financial freedom to more and more people. We have the tools to help you reach your client’s long-term financial goals, with funds that match their  individual needs.