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Several RIAs Take Big Stakes in Bitcoin ETFs

The money is flowing to the managers offering lower fees.

Several RIAs took large positions in spot Bitcoin ETFs during the first quarter in the months after the SEC approved the vehicles in January, according to recent quarterly 13-F filings. 

Legacy Wealth Asset Management, a Woodbury, Minn.-based RIA with 398 clients and $394 million in AUM, disclosed purchasing 352,594 shares in Fidelity Wise Origin Bitcoin ETF (FBTC) for $21.9 million. United Capital Management of Kansas, a Salina, Kan.-based RIA, with $304 million in AUM, purchased 349,999 shares in the same ETF for $21.6 million.

The stakes represent 6.09% and 4.97% of the firms' portfolios, respectively. In addition, Quattro Financial Advisors, a Woodlands, Texas-based multifamily office with $988.8 million in AUM, purchased 468,200 shares of Blackrock's iShares Bitcoin Trust (IBIT) for $18.9 million. The investment represents 5.4% of Quattro’s portfolio.

The moves are notable given the initial hesitancy by some RIAs to spot bitcoin ETFs after they were initially approved. The positions also represent some of the largest single investments in any of the 11 spot bitcoin ETFs since their launches. 

Through April 23, the 11 spot bitcoin ETFs have posted $12 billion in net inflows, according to Aniket Ullal, vice president of ETF data and analytics with investment research firm CFRA. However, when the outflows tied to Grayscale Bitcoin Trust ETF (GBTC) are taken out of the equation, the other ETFs in the sector saw $28 billion in inflows. While CFRA doesn’t track where the inflows are coming from, market insiders say most of the allocations are from the retail channel, Ullal noted.

“We talk to market participants and to traders in the space and what we have heard is that most of the money that’s come in so far has been very driven by retail and RIAs,” he said.

Chad Koehn, CEO of United Capital Management of Kansas, said the firm held a significant stake in Grayscale Bitcoin Trust before it was converted to an ETF in January. United decided to reallocate to Fidelity because of lower management fees. Grayscale currently charges a 1.5% fee, the highest of the 11 spot bitcoin ETFs. Fidelity’s fee is 0.25%. However, the company has waived it entirely until August 1.

According to Koehn, the RIA has been bullish on the crypto sector for several years, with about 9% of its total assets allocated to crypto holdings. This includes exposure to ProShares Bitcoin Strategy ETF (BITO) and Grayscale Ethereum Trust (ETHE), among other things.

“We were particularly interested in Fidelity because they sell custody,” Koehn noted. “We just didn’t want 100% of our assets custodied to Coinbase. It’s probably unwarranted paranoia, but that’s what we chose to do.”

Legacy Wealth Asset Management didn’t reply to requests for comment prior to publication. Quattro could not be reached for comment. 

According to Ullal, FBTC had $1.74 billion in inflows through April 23, with $2.26 billion in total assets, indicating the ETF had increased in value. Bryan Armour, director of passive strategies research, North America, with Morningstar, also noted that FBTC shares and shares of IBIT are two of the most popular and liquid spot Bitcoin ETFs on the market. IBIT also charges a 0.25% fee, with a reduced offer of 0.12% for the first year of trading or the first $5 billion in fund assets.

However, Armour cautioned that allocating a significant percentage of an investment portfolio to Bitcoin ETFs could be counterproductive if advisors want to diversify. He pointed to 2022, when total returns for Bitcoin dropped by over 65%, mimicking what happened in the stock and bond markets.

“It’s uncorrelated, but it’s also just purely speculative,” he noted. “It could have large price swings. It almost always adds to the volatility of the full portfolio, and, in that sense, it’s not a diversifier.”

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