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Digital asset ETFs surge, but US advisers have little interest in recommending them

The relative lack of adoption in advice isn't particularly surprising given its volatile nature and the unregulated state of the digital asset sector. But that may be about to change.

Despite regulatory uncertainty and a volatile profile, digital asset ETFs have continued their rapid ascension in the US with billions flowing into the nascent sector in just a matter of months.

Financial advisers, however, remained unconvinced by the prospect of recommending such a volatile asset and continue to eschew digital assets for their client portfolios according to research from US consultants Cerulli Associates.

Data in the July Cerulli Edge report shows that 57.3 per cent of US advisers never expect to discuss or use cryptocurrency investments with their clients in their future, with 26.4 per cent having never discussed it but expecting to do so at some point in the future. Only 13.7 per cent of US advisers are currently using or discussing cryptocurrency investments with their clients, while only 2.6 per cent are currently recommending it themselves.

  • The relative lack of adoption in advice isn’t particularly surprising given its volatile nature and the unregulated state of the digital asset sector. Events such as the 2022 collapse of Bahamas-based cryptocurrency exchange FTX, which saw around one million people face losses, has taken the shine off digital currencies like bitcoin and etherium for many advisers and investors.

    Yet there has been a significant influx of exchange-traded fund products that have come to market since 2022, giving investors a slightly safer vehicle to access digital assets. There are now almost US$63.8 billion worth of funds invested in digital asset ETFs (at May, 2024), with $14.9 billion of that coming from net flows in the year-to-date alone.

    More recently, as well, a bill was passed in the US system that could pave the way for a spike in the growth of digital assets.

    The growth of these ETF’s based on bitcoins is remarkable. The ishares Bitcoin Trust, in particular, has taken the US market by storm; launched on January 5 this year, it’s already the largest digital asset ETF with $19.5 billion under management and a 30.6 per cent market share, eclipsing the incumbent Grayscale Bitcoin Trust and its 30.4 per cent market share. No other digital asset has more than 20 per cent market share.

    Yet increased adoption of digital asset ETFs and the prospect of moving towards regulatory approval has not moved the needle significantly for advisers. But this may not be the case forever, the Cerulli team notes.

    “It still is possible that these viewpoints are awaiting further industry development before changing,” Cerulli states. “Both the designation of a regulatory body to oversee certain digital assets (the CFTC) and the test that defines digital assets as either commodities or securities serve to eliminate ambiguity that has given many pause in pursuing opportunities among digital assets, possibly making this a pivotal moment.”

    While financial planners hold back on digital asset advice i the hope that regulatory certainty might make it a safer proposition for clients, direct investors continue to put their faith in it. Cerulli notes that when selecting a digital asset provider, brand matters most.

    “With fees mostly within a small margin, brand familiarity is the differentiating factor that decides winners in the passive digital asset product ecosystem, and the same should be expected for future products,” the report states.

    Tahn Sharpe

    Tahn is managing editor across The Inside Network's three publications.

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