Cryptocurrency for Financial Advisors: Expert View – The Benefits of Owning Cryptocurrency Directly

The Importance of Direct Crypto Ownership for Advisors: Insights from Christopher King, CEO of Eaglebrook Advisors

At the beginning of this week, Bitcoin’s price stood at $35,000, showing a notable 62% gain in the year 2023. Christopher King, the founder and CEO of Eaglebrook Advisors, shares his perspective on why having direct ownership of cryptocurrency is the most favorable approach.

The recent results from our Bitcoin ETF survey align with a NASDAQ survey, revealing that over 70% of advisors are currently holding cryptocurrency and are willing to invest more for themselves once a Bitcoin spot ETF is approved. However, less than 10% feel comfortable advising their clients on this asset class. Below is a summary of the survey results.

Why Advisors Shouldn’t Wait for the Bitcoin Spot ETF

While a Bitcoin spot ETF might simplify access to Bitcoin investments, advisors who wait for its approval may miss out on a significant opportunity. Those with access to investment tools such as Crypto SMAs (Separately Managed Accounts) have a unique chance to “front run” larger institutions, potentially positioning their clients to benefit from Bitcoin’s historical four-year price cycle, especially in the current environment of tightening Bitcoin supply.

Cyclical Price Movements in a Growing Trend

Bitcoin’s price history demonstrates a four-year cycle marked by impressive gains followed by significant price drawdowns. This pattern is driven by changing sentiments within an emerging asset class, supported by Bitcoin’s code and mechanics. Every four years, Bitcoin undergoes a “halving,” effectively reducing the rate of new Bitcoin entering the market. This, along with other factors, contributes to the four-year price cycle.

With Bitcoin down 65% last year but up over 100% year-to-date, it could potentially be the first year of a new cycle, with the next halving event scheduled for April 2024.

Strike While the Iron is Hot

Given the favorable price relative to Bitcoin’s historical cycle and impending positive catalysts, advisors with access to Bitcoin should consider acting now. This proactive approach can allow them to take advantage of institutional inflows and barriers being lowered upon a Bitcoin investment’s approval.

A Bitcoin spot ETF approval and increased regulatory clarity could spark the next bull market, enabling latent demand to enter the market. Advisors can leverage existing tools like Crypto SMAs to capitalize on the gap between demand and investment flows.

Moreover, Bitcoin’s supply on exchanges is historically low, as more investors are holding their Bitcoin for extended periods. This limits the available supply for trading and amplifies the price impact when demand surges.

The Benefits of Direct Ownership

Direct ownership is currently the most efficient structure for investing in Bitcoin. It minimizes tracking errors compared to other products and provides 24/7 liquidity for Crypto SMAs, allowing flexibility for both investors and advisors.

However, the primary reason for choosing direct ownership is the long-term best interest of clients. Advisors who select the most favorable investment vehicle for their clients’ asset class, even if it requires additional effort, build a reputation for prioritizing clients’ needs. This demonstrates domain expertise, differentiating them from advisors unfamiliar with the crypto market. Clients will value advisors’ upfront efforts, strengthening trust in the relationship.

Bitcoin should be viewed as a generational opportunity, with the potential for substantial upside over a long-term investment horizon. Advisors should not wait for a Bitcoin spot ETF, as there are more efficient investment vehicles available. This is the time for advisors to make a prudent allocation to Bitcoin before institutional investors take the lead.

Christopher King, Founder & CEO, Eaglebrook Advisors

Bitcoin ETF Survey Results

In our recent survey on Bitcoin spot ETFs, slightly more than 50% of respondents expressed their willingness to invest in a Bitcoin spot ETF when it is approved in the U.S. Fifteen percent stated they would not invest, while the remainder of respondents were based outside the U.S. Notably, 82% of respondents mentioned that they would personally invest in a Bitcoin spot ETF.

When asked about the reasons for not allocating clients into a Bitcoin spot ETF, the top reasons included “lack of understanding and education” (32%), “inappropriate risk profile for clients” (28%), “availability at the firm’s product shelf” (17%), and other factors. Education and understanding of digital assets are essential, with designations such as CDAA and DACFP available to assist advisors in this regard.

We encourage further dialogue and engagement within the advisor community. Please feel free to reply to this email with additional thoughts and topics of interest.

Sincerely, Sarah Morton