Even As Bitcoin Dips, Crypto ETFs Break Down TradFi Barriers

According to Edelman’s calculations, an allocation of a few percentage points to crypto ETFs from the combined 50 million investors versus $11 trillion at Vanguard and another $5 trillion under advisory at Bank of America Merrill Lynch would have a significant impact on cryptocurrency prices. “When you talk about an estimated $300 billion flowing into Bitcoin and other digital assets, that would raise the market cap by 20%,” he said. “These are very bullish signals.”

Edelman sees the ETF industry as uniquely poised to drive growth in cryptocurrency investing. “The ETF industry is really good at manufacturing products, and cryptocurrencies represent the biggest growth opportunity for ETFs in decades,” he said.

Beyond the first bitcoin ETFs launched in January 2024, the landscape now includes exposure to leveraged and inverse cryptocurrencies, crypto returns, and even buffered strategies that reduce volatility.

For financial advisors, whether they are fans of investing in cryptocurrencies or not, volatility is often a concern. There are plenty of advisors like Alvin Carlos, a financial planner at District Capital Management who still keeps cryptocurrencies at bay. “We recommend against exposure to cryptocurrencies for our clients,” he said. “We do not consider it an investment, but rather a speculative project.”

Others, like Mike Casey, president of AE Advisors, have suggested that clients keep their exposure to cryptocurrencies at up to 5% or 10%, and said the emergence of spot bitcoin ETFs has given investors a regulated, low-friction way to get involved. “Bitcoin drawdowns have historically been frequent but temporary, and disciplined investors have used them to rebalance an asset with a long-term upside,” he said. Likewise, John Bovard, owner of Incline Wealth Advisors, said his company caps cryptocurrency allocations at 10% of the total portfolio. “I think this is a good time to add a little bit to (exposure to cryptocurrencies), because I think the price will rebound quickly.”

Cryptocurrency enthusiasts generally aren’t worried about a pullback — they say normal market corrections are usually driven by broader macro uncertainty and increased investor caution — especially after Bitcoin hit all-time highs earlier this year. “Over longer periods, bitcoin’s value tends to follow broader adoption trends, and its appeal as a hedge against monetary deterioration and inflation is more similar to gold,” said Damon Polestina, research director at Eaglebrook. For clients looking to capitalize on volatility, he said, he suggests maintaining or increasing their exposure through bitcoin ETFs. “The near-term outlook is always difficult to predict, but the long-term structural investment case for Bitcoin remains as strong as ever.”

Keep calm and enable encryption. Ultimately, as the tailwinds for cryptocurrencies increase, financial advisors will face more challenges and opportunities. When clients ask whether falling bitcoin prices make it a good time to buy cryptocurrency ETFs, it’s best to try to slow the conversation, said Brett Polzin, founder of Eight Peaks Wealth Management. “Periods like this naturally attract attention, but price action alone does not determine whether it makes sense for an individual investor,” he said. “What matters much more is why someone wants the exposure in the first place, how it fits into their overall plan and whether they fully understand the volatility they are signing up for.”

Regarding where cryptocurrency ETFs fit within clients’ portfolios, Polzin emphasized that they should never be an underlying holding. “I am currently between 5% and 10%, as I would be with precious metals or sectors,” he said. “The biggest risk I see is not volatility per se, but more asset allocation than anyone can realistically remain committed to when markets become uncomfortable.”

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