BlackRock Exec: Institutional Investors Embrace Bitcoin ETFs

The debut of U.S. spot Bitcoin exchange-traded funds (ETFs) has been a success, with numerous major financial institutions exploring the investment.

However, registered investment advisors (RIAs) are still cautious about the new product, said Samara Cohen, BlackRock’s chief investment officer of ETF and index investments, at Coinbase’s State of Crypto Summit this week.

Institutional investors are increasingly interested, with Blackrock’s spot Bitcoin ETF attracting massive inflows.

So far, most buyers are “self-directed investors using an online brokerage account,” according to Cohen. She added, “I would call them wary … that’s their job.”

Prominent asset managers see crypto as a worthy portfolio allocation. Pension funds and other large institutions are exploring crypto opportunities.

Wall St. Loving BTC

According to last quarter’s 13-F filings, over 600 institutions reported their investments in U.S. spot Bitcoin ETFs. The list includes Millennium Management, Morgan Stanley, JPMorgan, UBS, Wells Fargo, and UBS, among others.

Cohen noted that there are reasons behind RIAs’ caution. Cryptocurrencies have experienced massive price swings in the past, reaching 90% volatility at times. RIAs, as fiduciaries, prioritize managing risk for their clients, and such volatility makes crypto a risky investment.

In addition, short track record of the asset class is among top concerns. Compared to traditional assets, there’s less historical data and established risk analysis tools for crypto. RIAs need time to be comfortable with the role crypto plays in a portfolio.

“…in terms of really putting forward important data, risk analytics [and determining] the role bitcoin can play in a portfolio, what sort of allocation is appropriate given an investor’s risk tolerance, their liquidity needs,” noted Cohen.

However, RIAs are not against crypto entirely. They are responsible for managing client risk and building portfolios, so careful analysis of Bitcoin’s role is needed, according to BlackRock CIO.

Cohen also pointed out that spot Bitcoin funds have offered a regulated way for traditional investors to gain exposure to Bitcoin without dealing directly with crypto exchanges.

A Slow Journey of Adoption

Both industry leaders and advisors agree that Bitcoin adoption through ETFs will be a slow process. Alesia Haas, Coinbase’s chief financial officer, expects a gradual adoption of Bitcoin through ETFs.

Blue Macellari, head of digital assets strategy for T. Rowe Price, believes that some investors view a 1% allocation to Bitcoin as a safe and comfortable starting point. According to her, Bitcoin portfolio allocations tend to be all-or-nothing decisions. Investors either choose a greater allocation above 1% or stay out entirely.

Macellari said it is the psychological need for investors to gradually become familiar and comfortable with this new asset class. Bitcoin is a relatively new asset class with a high degree of volatility. Investors may be unsure of how Bitcoin will perform in the long term, and they may be unwilling to risk a large portion of their portfolio on it.

Spot Bitcoin ETFs in the U.S. have amassed 17,144 BTC in June. Last week, these ETFs recorded negative flows of over $600 million, according to data from Farside and HODL15Capital.

Unlike other major ETFs, BlackRock’s iShares Bitcoin Trust (IBIT) reported inflows since the start of the month. It is currently the world’s largest Bitcoin ETF, surpassing Grayscale Bitcoin Trust. As of June 16, IBIT has managed 305,591 BTC, worth almost $20 billion.

On June 11, the new Bitcoin ETF’s 19-day inflow streak was broken, but inflows resumed the following day. However, this positive trend was short-lived, as June 13 became a “bleak” day for the ETF.

Elsewhere, SEC Chairman Gary Gensler provided an update on the Ethereum ETFs this week. Gensler suggested that the final approval for a spot Ethereum ETF could be completed by September. Bloomberg ETF analyst Eric Balchunas estimates that the SEC will approve Ethereum ETFs for trading on July 2.