Prospects of rich returns and diversification remain out of reach as legal issues prevent direct exposure
With its sheer size, sector diversity, and depth of capital, it wouldn’t be controversial to say that the U.S. investment industry beats its Canadian counterpart hands down nine tenths of the time. But with the launch of the world’s first bitcoin ETFs in Canada, U.S. investment professionals are caught in the rare position of looking at the Great White North with more than a tinge of envy.
With a return profile that’s massively uncorrelated to stocks and other traditional assets and a performance record that’s turning heads, bitcoin has become a desirable portfolio holding for many wealth managers in the U.S., according to Reuters.
“What I like about bitcoin is ... its correlation to stocks and other assets is extraordinarily independent,” Jim Paulsen, chief investment officer for Leuthold Group, told the news outlet.
A report from Citi has found nearly 20% of advisors are seriously considering investing in cryptocurrencies this year as inflation fears loom, compared to just 6.3% who were considering it in 2019.
But the problem for many U.S. advisors is that because of legal hurdles, they are unable to own bitcoin for their clients unless it’s held in an ETF or mutual fund vehicle. And right now, U.S. investment professionals chomping at the bit for bitcoin are stuck in regulatory limbo.
According to Robert Jenkins, global head of research at Refinitiv Lipper, the U.S. Securities and Exchange Commission does not yet deem cryptocurrencies as a security in the way it does stocks and bonds, and has not ruled on whether mutual funds can own them directly. It’s not clear whether any U.S.-domiciled mutual funds currently have bitcoin holdings, as they are not required to disclose it.
And as reported by Reuters, bitcoin ETFs have also long been a non-starter in the U.S. Since 2013, eight firms have tried and failed to get clearance for a bitcoin ETF from U.S. regulators, said CFRA director of ETF and mutual fund research Todd Rosenbluth. Certain funds with positions in bitcoin, such as the popular ARK Invest ETF line, get it through shares of the Greyscale Bitcoin Trust, a publicly traded trust that has a set number of bitcoin units, which often trades at a premium to its underlying assets.
With high hurdles to clear with respect to concerns around market manipulation and custody audit, Rosenbluth expressed doubts that there would be a bitcoin ETF launched this year. That leaves advisors in the U.S. with their hands tied, and impatient clients with no recourse but to buy their shares of cryptocurrency funds, which have taken in US$4.2 billion in flows for this year through March 1, according to asset manager Coinshares.
