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Ric Edelman, founder of Edelman Financial Engines

Portfolio > ETFs

SEC Approval of Bitcoin ETFs Could Come This Week

By Ric Edelman

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The entire crypto community — and investors nationwide — will be thrilled about the launch of the first-ever spot bitcoin ETFs, which the SEC may approve as soon as Wednesday or Thursday, with the launch of these funds expected no later than Jan. 10.

My prediction: These ETFs will collectively represent the most successful ETF launch in history, ultimately receiving hundreds of billions of dollars in assets flows over the next three years.

I also predict that $150 billion will flow into these new spot bitcoin ETFs from independent RIAs.

Add in the flows from financial advisors working at the nation’s largest brokerage firms, regional and independent broker-dealers, as well as institutional and individual investors, and we could easily see trillions of dollars flowing into bitcoin over the next few years.

While the spot bitcoin ETF sponsors are understandably excited about this potential asset flow, investors themselves are ecstatic — because everyone is assuming that these massive new flows will cause bitcoin’s price to skyrocket.

Bitwise (which offers one of the new ETFs) says the price of bitcoin will be $80,000 by the end of 2024. Standard Chartered, one of England’s biggest banks, says bitcoin will end 2024 at $100,000. Venture Capitalist Tim Draper says bitcoin will be $250,000 by year’s end.

My view? I haven’t said much about 2024, but I have been vocal about 2025: I believe bitcoin will be $150,000 within two years. I’m not alone in this prediction; AllianceBernstein also says that.

Considering the projections for 2030, Techopedia predicts bitcoin will be $120,000. JPMorgan says $150,000, while Coinpedia says bitcoin’s price in 2025 will be $350,000 and ARK Invest (another ETF sponsor) says it will be $1.48 million. Notably, no one seems to be predicting a decrease in bitcoin’s price from its 2023 ending value.

These projections imply significant gains: 2x to 6x in 2024, 4x to 9x by 2025, and 3x to 35x by 2030. Such forecasts understandably stir excitement, especially when compared to the stock market’s projected 2x gain by 2030. No wonder three in four financial advisors plan to allocate 1% to 5% of client assets to these new spot bitcoin ETFs.

Despite all this excitement, we need to temper our enthusiasm. The mere launch of these ETFs will not cause bitcoin’s price to double, triple or quadruple immediately.

The SEC’s approval is not a light switch; it’s going to take time for asset flows to occur — and those who don’t realize this important fact are likely to experience disappointment from unfulfilled expectations. The disappointment could morph into regret when negative headlines highlight the fact that asset flows in the first weeks aren’t as high as expected.

Although I’m predicting that independent RIAs will place $150 billion into spot bitcoin ETFs over time, asset flows will be muted initially. To understand why, let’s look at the three channels of advisory field: Wirehouses, IBDs and RIAs.

When wirehouses evaluate new products, their investment committees must first decide which to approve, while their legal and compliance officers have to write policies governing which advisors can offer them, and which clients are permitted to invest in them.

Wirehouses generally do not make ETFs available to their advisors until those ETFs have at least $100 million in assets, because the firms want confidence that the ETFs have sufficient liquidity to handle the massive trading flow that their tens of thousands of reps might generate. Thus, it could be a year before wirehouses allow their advisors to offer these new ETFs to their clients.

The IBDs — regional and independent broker-dealers, such as Raymond James, A.G. Edwards, Edward Jones, and LPL — are often faster to move than the wirehouses, but they too are unlikely to let their financial advisors use these new ETFs immediately.

The quickest to act are the independent RIAs. Although each is small — typically with one to 10 advisors — there are 300,000 advisors operating in this channel. Most act as their own compliance officer and few have a formal investment committee.

That translates into agility, and since these advisors process their trades through such custodians as Schwab, Fidelity, Pershing and others where the ETFs are immediately available, these advisors can act immediately as well.

But even they won’t move instantaneously. Let’s face it: Most advisors have not paid much attention to crypto. They don’t understand blockchain, and they don’t know how to explain bitcoin to clients.

Only after they get past that hurdle will advisors be ready to tackle the big tactical questions: Which of your clients should invest in these ETFs? What allocation is best for them? How will you communicate this recommendation, and how will you respond to questions and objections?

For all these reasons, it’s going to take time for assets to flow into these new spot bitcoin ETFs. So, make sure you have realistic expectations. Otherwise, you and your clients will be disappointed.

And even though flows will occur, bitcoin’s price might not rise as fast as you expect. While the new spot bitcoin ETFs will be buying bitcoin, other investors will be selling bitcoin. Some will be locking in their 2023 profits, and others will be rebalancing their portfolios.

And let’s not forget the crypto bankruptcy trustees. The Mt. Gox Rehabilitation Trust and the trustees managing FTX’s bankruptcy are under court orders to sell their bitcoin holdings, to return the proceeds to those frauds’ victims.

The Mt. Gox Trust will be selling $5 billion worth of bitcoin this year; the FTX trustees will unload another $3.5 billion. This downside selling pressure will offset some of the upside buying frenzy.

In the long term, I fully expect bitcoin’s price to be in the low to middle six figures. But it won’t happen overnight. This makes bitcoin an outstanding addition right now to a long-term diversified portfolio, using all the traditional investment strategies you’ve mastered over the years, such as rebalancing, dollar cost averaging and tax-loss harvesting.

But triple-digit gains instantly? Help your clients temper their enthusiasm.

Ric Edelman is an author and founder of RIA Edelman Financial Engines (earlier Edelman Financial Services). He now leads the Digital Assets Council of Financial Professionals.

Pictured: Ric Edelman

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