Harvard Owns IBIT. Is that smart for clients?

Should financial advisors and their clients follow the “smart money?”

Recently, Ivy League schools including Harvard University and Brown University have disclosed that they are among the numerous institutional investors with allocations to bitcoin ETFs. That trend is further legitimizing crypto as an asset class and may have some individual investors wondering if they, too, should bank on bitcoin. Financial advisors have different stances on whether (and how much) clients should allocate to the highly volatile category, but they agree that it should be approached with caution. For example, most of AE Advisors’ clients have 5% to 10% allocated to Bitcoin via spot-price ETFs or digital custodians, president Mike Casey said. 

But Casey, who said he was among the first CFPs to recommend bitcoin allocations as far back as 2019, added, “please keep in mind that bitcoin has substantially more market cap and mainstream adoption than the other crypto tokens, which are still generally speculative in nature.”

Tokens of Advice

Retail demand is obviously there for spot crypto products like BlackRock’s iShares Bitcoin Trust ETFs (IBIT), which is approaching $90 billion in assets. But the extent to which advisors use certain products is influenced in part by their inclusion in model portfolios — and spot crypto ETFs are almost nonexistent there. “BlackRock is really the only one we’ve seen going forward with adding it into its model portfolios,” said Cindy Zarker, relationship manager at Fuse Research Network. “All of this is changing. You have a lot of firms that have various digital-asset offerings, and they’re promoting those offerings and how they can benefit a portfolio.”

There are signs that digital assets are maturing, said Clark Randall, director of financial planning at Creekmur Wealth Advisors. Those include BlackRock’s launch of IBIT and Congressional  passage last month of the Genius Act, he said. “In addition, research has shown that including an allocation of up to 7% in Bitcoin can improve the risk-adjusted return of a diversified investment portfolio.”

Still, if more advisors are bullish on Bitcoin, it’s a new phenomenon. Data from a survey last year published by Fuse show:

• Fewer than 20% of advisors said they would allocate a small portion of client assets to crypto.
• Fewer than 5% would include a crypto ETF allocation for clients.

Time for Class: “Institutional interest from endowments and other large investors lends credibility to the ETF structure because it is regulated, custodied and easy to report for taxes,” said Jared Gagne, private wealth manager at Claro Advisors. “It does not make crypto less volatile. In wealth management, that distinction matters.”

Institutions have more time to weather that volatility than individuals, and allocations for clients should be satellite holdings at most, said Patrick Huey, owner of Victory Independent Planning. “The average individual investor can’t invest with a truly infinite time horizon and is more exposed to urgent liquidity needs, emotional stress and the risk that riding out a 70% crypto correction isn’t just uncomfortable, but catastrophic to their plans.”