Bitcoin ETF adoption - Canadian Wealth Management Perspective

While I cannot speak specifically to the US Wealth Management landscape, working in the industry in Canada, I wanted to pass along my perspectives as we seem to be a few years ahead. I hope to start a discussion around the topic in this community and see if others can share their experiences specifically from a US client perspective.

I work on a Wealth Management team that services HNW families directly. Working in the industry, I try to stay reasonably up to date in the ETF space and I have been excitedly following the launch of these Spot ETF products in the US and what it means for the industry as a whole. However, I have also been reading some rather optimistic projections from large money managers of the potential markets these ETFs will open the doors to and the net fund inflows that could result this year. I do want to caution how slow large firms can be to incorporate volatile (and relatively new) asset classes to their clients. Before the US ETF approval we were seeing expectations for net inflows in the 11 ETFs on day one to be in the range of $2-$4 billion with year-end net inflows of 50 billion+. What has materialized so far seems to be closer to $700 million in net inflows total in the first two days. Significantly lower than expectations. To give some context - last I checked, the total Spot Bitcoin ETFs AUM in Canada after ~3 years is about $2 billion. The first few days after the Canadian Bitcoin ETF launch saw about $400 million in net inflows in 2021.

Keep in mind, the Canadian investment marketplace is significantly smaller than the US and many global industry participants were undoubtedly waiting to receive direction from the SEC but we have had access to a spot bitcoin ETF for almost 3 years now. Keeping that in mind, we work with one of the largest firms in Canada (based on AUM) and I was curious how many of our suggested portfolio designs sent to our advisory teams contained direct exposure to BTC. After some searching, I was able to locate one single design that had a position with direct exposure to BTC via one of the major Canadian spot ETFs. This single fund (with a suggested maximum exposure of 10%) has a total AUM of only $700M of which ~5% is in BTC.

Many industry articles have stated the level of wealth held by older generations and that these ETF launches will open the doors to allow advisors to gain exposure to the asset class for their clients and that even holding small amounts (1%-5%) of this wealth in BTC will cause a significant price appreciation of the asset. While this line of thinking is true and reasonable, from personal experience of the industry up north, even a 1% allocation of larger retail clients can be very slow to achieve, especially as many families look to reduce risk/volatility as they age. I suspect institutions such as pension plans and large corporations in the US may move just as slow. In fact, many of our largest Canadian pension plans had previously employed teams to review the possibility of crypto holdings and have decided to no longer consider it as an option.

From personal experience, in the last 12 months I have received exactly zero questions about BTC/crypto during client meetings. The discussions only happened when I brought up the topic to clients out of curiosity of their position and was usually met with a statement along the lines of "I'm not interested in investing in fake internet money". Last point, the question was asked to our portfolio design team in our year-end investment conference about expanding crypto offering in 2024 and the answer was not promising.

The purpose of this post is not to burst any bubbles but only to provide personal experience on the topic and how it may conflict with much of the news/shorter term projections in the industry. While I'd like to be proven wrong, I am managing expectations as to the speed at which new, sustained, inflows into the asset class may occur.

Feel free to ask any questions and hopefully some in the wealth management space in the US (from an advisor or client perspective) can share their experiences and how it may mirror or conflict with my own.

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TL:DR - Canadian Spot ETF released in Canada ~3 years ago has seen low net inflows and slow adoption by Wealth Management firms to their clients. Similar patterns could emerge in the U.S. (after reviewing the initial net inflows into the 11 spot ETFs) leading to lower than expected adoption over the next 12 months.

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