Bitcoin’s Record Rally Prompts Advisors to Take a Second Look

Even the biggest crypto-skeptic financial advisors are starting to admit: They’re paying attention.

After the price of bitcoin hit record highs, on the heels of a 42% gain over the past two months, financial advisors are starting to consider whether the notoriously volatile asset class has a rightful place inside client portfolios. “I’ve noticed an increase in client inquiries regarding bitcoin, and I go back to the fundamentals with this emerging asset,” said Nate Baim, founding member of Pursuit Planning and Investments.

Like a lot of advisors these days, Baim is focused on bitcoin’s price volatility and managing client expectations for an asset that has gained nearly 17% this year, while suffering a peak-to-trough decline of more than 40% and riding a 12-month gain of more than 60%. “Bitcoin has historically shown extreme price swings, and I expect that volatility to persist,” he said. “For those clients who wish to gain exposure, I generally suggest a conservative allocation for those who understand bitcoin’s risks.”

Chomping at the Bit

As the most popular of the cryptocurrencies, bitcoin investing has gained fast appeal since the January 2024 debut of spot bitcoin ETFs. Prior to that, crypto exposure through exchange-traded funds was limited to futures contracts, which limited the ability to perfectly track the price of the underlying digital currency. The Securities and Exchange Commission has since approved spot Ethereum ETFs and there are already funds folding in options strategies to leverage and hedge the volatility of crypto investing.

Todd Rosenbluth, head of research at TMX VettaFi, attributes at least part of the growing appeal of the asset class to the Trump administration, “which is seen as more favorable to crypto investing.” According to VettaFi data, the largest spot bitcoin ETF, the $70 billion iShares Bitcoin Trust (IBIT), has had more than $8 billion worth of net inflows this year, and nearly $6 billion came in during the month of May.

Rosenbluth believes the bitcoin price pullback earlier this year was due to uncertainty around President Trump’s global tariff negotiations, which rippled across most financial assets. The S&P 500 Index, for example, suffered a 19% peak-to-trough drop from February to April, but has since rebounded to slightly positive territory for the year.

Rosenbluth believes the crypto appeal is also being fueled by what he describes as the “second wave” of crypto ETFs aimed at various investor categories.

Keep My Options Open

The Calamos Bitcoin Structured Alternative Protection ETF (CBOJ) is an actively managed strategy that uses options to keep price volatility within a certain range during the 12-month term of the ETF. And on the other end of the spectrum is the NEOS Bitcoin High Income ETF (BTCI), which is a fund of funds designed to generate income through exposure to bitcoin, bitcoin futures contracts and call options.

“We’ve seen ETFs using options to leverage or protect downside building momentum for the past five years on the equity side,” said Rosenbluth. “What’s novel is, over the last six to 12 months, we’ve been seeing these strategies applied to crypto investing.”

Based on advisor feedback, the ETF issuers are striking the right cord and at the right time. “Several of my clients now hold bitcoin ETFs, however, not all of my clients are comfortable with the exposure,” said Ryan Bond, wealth manager at Savvy Advisors.

“We always preach diversity, so we’re making sure we add in the exposure in a way that does not over-expose investors to the risks associated with crypto volatility,” he added. “Overall, I am also a bit wary of crypto exposure, as the volatility and uncertainty of future returns is a big concern.”

Fixed Supply. Francisco Rodriguez, investment analyst at Brinker Capital Investments, sees a host of drivers behind the growing appeal of crypto investing. “We may now be entering the second phase in the evolution of bitcoin ETFs and bitcoin as a legitimate investable asset,” he said. While Rodriguez credits the Trump administration with drawing more attention to crypto, he believes the recent rally is driven by “asset allocators and investors re-optimizing portfolios to include more uncorrelated assets.”

“Bitcoin has often been referred to as digital gold due to its fixed, hard-coded supply of 21 million units and its decentralized, open blockchain system, both of which theoretically should insulate it from traditional monetary debasement,” he added. “As a result, bitcoin is increasingly viewed as a unique diversifier or hedge against currency devaluation, sovereign credit risk, and geopolitical instability.”

Where’s My Wallet? Jon Henderson, founder and chief investment officer at Echo45 Advisors, credits ETF issuers with bringing crypto investing to masses, but adds that for direct ownership of digital assets, “ETFs may fall short.” For his clients, Henderson is investing in crypto through separately managed accounts, with the direct assets held at cryptocurrency custodians like Gemini Trust Co. and Anchorage Digital.

“These custodians function much like Schwab or Fidelity for traditional assets, allowing our clients to hold crypto securely in their own names without the risks associated with self-custody,” Henderson said. 

Once the Weather Warms. Across the financial advice industry, which not long ago stood out for its skepticismof crypto investing, advisors are no longer able to ignore the asset class.“Yes, clients are asking about digital assets, especially as bitcoin makes headlines and pushes toward all-time highs,” said Mark Stancato, founder of VIP Wealth Advisors.

“However, just as with any asset that dominates the conversation, our role is to bring perspective and help clients make thoughtful, informed decisions,” he added. 

In terms of where crypto fits inside a diversified portfolio, and how much makes sense, Stancato is limiting exposure.

“For the majority of clients, a small allocation, typically in the range of 1% to 3%, is suitable, but always with a clear understanding of the asset class’s volatility, behavioral risk and speculative nature,” he said. “Digital assets can be part of the conversation, but they are never the foundation of a long-term plan.”

Even as Stancato warms to the idea of folding crypto into client portfolios, he is eager to point out realities of how the asset class has performed as it becomes more mainstream. “What is becoming clear, and supported by data, is that bitcoin is not behaving like the inflation hedge or portfolio diversifier many once claimed it would be,” he said. “Correlations with equities have increased, particularly during times of market stress, making it appear more like a risk-on asset than a proper hedge.”