“It’s clearly not an investment,” advisors weigh in on the impact of US bitcoin ETFs

Markets
01-26-2024

How advisors are answering client questions about cryptocurrency following the SEC approval of bitcoin ETFs

January 17, 2024

While Canadians have had access bitcoin ETFs since the pandemic, the approval of US-listed bitcoin ETFs by the SEC last week was still meaningful news on this side of the border. The access US investors now have to bitcoin-tracking ETFs was predicted to make a meaningful impact on demand for the cryptocurrency.

Following that announcement, those new US ETFs saw billions of dollars in trading values. However, the price of Bitcoin has pulled back meaningfully from the highs it hit in the leadup to last week. As big news in the US drums up consumer interest in bitcoin worldwide, how are Canadian financial advisors viewing the currency and what are they now telling their clients?

“I would say that insofar as you define an investment as one which generates income or has the potential to generate income I think it’s clearly not an investment in that context,” says Kevin Burkett, portfolio manager at Burkett Asset Management. “Whereas shares issued by a company or bonds issued by a company or government derive their value from the ability to generate some underlying cash flow somewhere, cryptocurrencies do not have that.

“That kind of relegates bitcoin to the category of what I would call a collectible. It’s finite and so has value derived by the relative forces of supply and demand the way art, or commodities, or other collectibles derive value. For me, that’s a very key distinction.” 

While Burkett says he is not “anti-bitcoin” and sees a great deal of interest in the technology, he thinks the fact that bitcoin has been marketed as an investment has created a great deal of confusion among investors. Accessing bitcoin through investment vehicles like ETFs, too, has popularize the view of bitcoin as an investment. While it may appear like a semantic distinction, Burkett believes that because bitcoin does not meet his definition of an investment it’s not something he would elect to put in his clients’ accounts.

Francis Sabourin may not share Burkett’s hardline delineation between what is and is not an investment, nevertheless he treats bitcoin and other cryptocurrencies as a purely speculative play. The director of wealth management and portfolio manager at Francis Sabourin Wealth Management of Richardson Wealth sees the approval of ETFs as a victory for bitcoin and cryptocurrency advocates, nevertheless he ensures his clients are aware of the speculative nature of that market.

“I tell my clients it’s not a proven investment. It’s very speculative. It’s sexy, it’s interesting to know, but it’s not yet mature in terms of investment,” Sabourin says. “That’s because there’s no intrinsic value by itself. Gold has intrinsic value, dollars have intrinsic value. You can do something with your gold bar, you can melt it down and make jewellery, but with bitcoin what else are you going to do with it? Is it Monopoly money or what?”

Sabourin says that when clients come to him asking about bitcoin or other cryptocurrencies, he expresses these concerns, says they’re free to try out an investment but emphasizes the speculative nature of bitcoin.

Burkett shares that view, likening bitcoin’s value to that of baseball cards of beanie babies. While many bitcoin advocates are celebrating the arrival of US ETFs, Burkett notes that it may impact the original intent of the cryptocurrency as a medium of exchange without intermediaries. The introduction of products like ETFs will bring more intermediaries into the space and bring in greater regulatory attention. That may, in turn, leave bitcoin and other cryptocurrencies in a space where they aren’t used as currencies, and trade more on psychology and speculation than any underlying value creation.

As advisors tackle questions about cryptocurrency from their clients, Burkett believes they should begin by contextualizing things like bitcoin in what they know about investments as advisors. They can draw their own lines based on what they’ll include in their practice and what they wont.

“Be careful, it’s okay to say that you don’t know about something,” Burkett says. “There’s a lot of things that you can own within the universe of what is an investment. To understand where you have specialist knowledge and where you don’t have specialist knowledge, that’s how you can make sure that you have a high chance of adding value as opposed to taking value away. I think advisors should not be knew to these sorts of questions, we’re talking about bitcoin today but five years ago it might have been marijuana stocks.

“In the decades I’ve been around I’ve seen some of these topical investment subjects come and go. Over the years I’ve become more outspoken when clients ask about something that doesn’t meet the quality filters we have, and I think clients really appreciate it when you give them your honest opinion about something that doesn’t make sense.”



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