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It’s Been a Banner Year for Spot Bitcoin ETFs, But Experts Say There’s More to Consider Before Adding Them to Your Portfolio
It has been a banner year for spot bitcoin exchange-traded funds, with some of the biggest asset managers introducing ETFs that hold the flagship digital currency. But despite the success of these ETFs, experts say there are things to consider before adding them to your portfolio.
The U.S. Securities and Exchange Commission approved the first spot bitcoin ETFs in January, and earlier this month, the 12 spot bitcoin ETFs collectively surpassed $100 billion in assets under management, marking one of the most successful ETF launches in history. Bitcoin ETFs give investors a “traditional way to buy an untraditional asset,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York.
Despite recent volatility, the price of bitcoin was still up nearly 120% year to date, as of Dec. 20, fueled in part by the pro-crypto policy proposed by President-elect Donald Trump. There is a lot of upside potential, said Boneparth, who is also a member of CNBC’s Financial Advisor Council. But there is typically a “tremendous amount of volatility” compared to traditional asset classes.
If you are still ready to buy bitcoin ETFs, here’s what to consider. Advisors remain ‘cautious’ about bitcoin ETFs, with most not currently using or discussing cryptocurrency with their clients. To mitigate risk, experts suggest keeping your allocation small – around 2% to 3%, maximum – and rebalancing regularly.
Your allocation should be based on your goals, risk tolerance and timeline. Without rebalancing, a ballooning bitcoin ETF position could have a “drastic impact on the overall portfolio’s risk profile,” said Amy Arnott, a portfolio strategist with Morningstar Research Services. It’s good to rebalance on a regular schedule, quarterly at a minimum, or even monthly for volatile assets such as bitcoin.
Like other investments, it is important to consider your goals and timeline before adding bitcoin ETFs to your portfolio. Similar to stocks, Morningstar’s portfolio framework recommends holding bitcoin and other cryptocurrencies for at least 10 years due to volatility, periodic drawdowns and crypto winters. “It’s not a good place to be if you’re saving for a down payment on the house in a few years,” Arnott said.