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Portfolio > Alternative Investments > Cryptocurrencies

Why Bitcoin Bull Boneparth Is Waiting for a Crypto ETF

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What You Need to Know

  • The SEC's approval of crypto exchange-traded funds is “inevitable,” says the advisor.
  • SEC approval of a Bitcoin ETF would give advisors the the ability to solicit and recommend Bitcoin, he says.
  • Until then, he'll continue to educate clients about cryptocurrencies, including self-custody.

Douglas Boneparth, president of New York-based RIA Bone Fide Wealth, believes it’s only a matter of time before financial advisors can comfortably recommend Bitcoin for client portfolios — and that time will come when the Securities and Exchange Commmission approves a Bitcoin ETF.

“It’s inevitable,” said Boneparth, a certified financial planner.

Currently eight Bitcoin ETFs are pending before the SEC, which has rejected previous ETF filings. But cryptocurrency enthusiasts hope that will change with the confirmation of Gary Gensler, a former MIT professor and expert on blockchain technology and digital currencies, as SEC chairman.

SEC approval of a Bitcoin ETF would be a “seminal event,” providing advisors with the capacity and the ability to solicit and recommend Bitcoin as an investment, said Boneparth.

The advisor is no stranger to Bitcoin, having mined some in 2014 with a friend, who took care of the actual computations and electric bills. Boneparth continues to hold onto that stash in his own digital wallet — he won’t divulge how much — but says he currently educates clients about Bitcoin rather than recommending it due to regulatory scrutiny.

“I can share what I’ve learned with clients, about the risk profile and how to think about having Bitcoin in their portfolios,” said Boneparth, noting there are no regulatory constraints on doing so.

Crypto Risks

The biggest risk to owning cryptocurrencies is price volatility, Boneparth said. “Clients need to be able to stomach big fluctuations in the price of Bitcoin and other cryptocurrencies, which typically experience 10% to 20% corrections.”

Many of his clients, high-income earners age 28 to 42, approach him about investing in Bitcoin. “They know I own Bitcoin,” he said. A good number of them — 15% to 20% — already own cryptocurrencies — Boneparth says.

Boneparth educates clients about Bitcoin and other cryptocurrencies, including self-custody, but he will not advise them to own cryptocurrencies today. “I recommend they do their research on the ways to invest in crypto and find the solution that’s right for them, but I also break down how fee structures work at various exchanges or through trusts,” the advisor said.

“Once you start to make recommendations and bill on that there’s a lot of regulatory issues — risk and insurance integration of technology, reporting, [etc.],” he said. “An ETF would solve a lot of this.”

In the meantime, he looks forward to offering clients Bitcoin ETFs when they come to market.

(Currently, investors can buy shares of Grayscale Bitcoin Trust (GBTC), which is set to become a Bitcoin ETF in the future, as well as other Grayscale crypto funds. They also can also purchase shares of Coinbase, the largest U.S. crypto exchange, which went public Wednesday; buy shares of Tesla, Square or MicroStrategy, which all own Bitcoin; or invest in several Ark Investment Management ETFs that own some of these stocks as well as Coinbase.)

Bitcoin Bullishness

“Coinbase is derivative, investing in a business making money in crypto, but it’s not crypto,” said Boneparth. “It’s a play into cryptocurrency as a market, not cryptocurrency as an asset. A better strategy is investing in MicroStrategy,” a business intelligence company.

Bitcoin accounts for about 70% of MicroStrategy’s market cap.

Boneparth is bullish on Bitcoin because the supply is finite — just 21 million Bitcoin can ever be mined and about 18.7 million already have — and demand is just starting from an institutional perspective.

“Next up will be demand from sovereign funds, from Fortune 500 companies [Tesla is one], long/short funds, pension funds and ETFs. … Then wham, back over to the retail side, when individual investors and advisors can  add crypto positions into portfolios,” he explained.

A 1% to 5% allocation into a cryptocurrency ETF would be a good starting point for investors, the advisor says. But if asset allocation funds allocate that amount to Bitcoin, “you can only imagine what that will do to its prices.”

The price of Bitcoin as of April 16 was nearly $62,000, roughly nine times its price a year ago.


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