Everyone Has Crypto FOMO, but Does It Belong in Your Portfolio?

Other fund vehicles hold crypto directly, but they’re grappling with different structural problems and carry higher fees, which are a drag on returns.

Grayscale Bitcoin Trust, the largest Bitcoin vehicle, with $27 billion in assets, costs 2 percent and trades on the “over the counter” market. But these trusts don’t have the flexibility of regular mutual funds and E.T.F.s to balance supply and demand, so their share prices may deviate from Bitcoin’s price. Another provider, Osprey Bitcoin Trust, became available (for a fraction of Grayscale’s cost) in February, but it faces the same challenges.

Grayscale, Bitwise and other providers have said converting to an E.T.F. structure would solve these problems, but they haven’t received the green light from regulators, who worry that the underlying coins may be subject to manipulation and fraud. (E.T.F.s that hold actual coins do exist elsewhere, though — the Fidelity Advantage Bitcoin E.T.F., for example, is available in Canada.)

Investors seeking professional guidance may find that more financial advisers now have firsthand cryptocurrency experience — some of which may be driven by an effort to educate themselves and field questions with more confidence. About 47 percent of advisers reported owning crypto assets in 2021, according to the Bitwise/ETF Trends survey, which polled 619 advisers. That was nearly double the result the previous year.

One adviser, Ritholtz Wealth Management, has gone as far as introducing, with partners, a crypto-related index providing broad exposure for its clients through a separately managed account. It charges 0.50 percent annually, and has a sign-up fee of 0.70 percent.

Crypto is “hard to ignore at this point,” said Michael Batnick, Ritholtz’s director of research.

Cristina Guglielmetti, a financial adviser in Brooklyn, called the vast majority of her clients “prime crypto-curious”: “mid-40s, familiar with tech/pop culture — it’s all around them.” She tries to understand why they want crypto, while making sure they’re aware of its place in their investment mix.

“Are we putting off other goals so you can do this?” she said. “Or have we handled everything else that needs handling, and now you’re in a good place to be doing more speculative things?”

That makes cryptocurrencies just like any other boom-or-bust investment, Ms. Guglielmetti said.

“We just have to understand what role it’s playing for you,” she said. “Having some fun and exploring new things is a perfectly valid role.”

Article source: https://www.nytimes.com/2022/03/24/your-money/bitcoin-investing-cryptocurrency.html