How are advisors using Bitcoin ETFs in their client portfolios? It varies depending on the time.

We now have a better understanding of who is and is investing in Bitcoin ETFs, but how these products are used is a different story.

In recent weeks, various institutions have filed so-called 13F filings, providing a glimpse into the buyers and position sizes of the spot Bitcoin ETF, which has seen huge demand since its launch in January.

Financial experts told Blockworks that advisors and clients are considering an allocation of between 1% and 10%. Sometimes they combine Bitcoin ETF holdings with exposure to cryptocurrency stocks, ETH, and other assets.

And what will these positions replace? Depending on the conditions.

Read more: What 13F Filings Tell Us About Institutional Preferences for Bitcoin ETFs

Tennessee-based Fielder Capital held assets worth about $23 million in the Bitwise Bitcoin ETF (BITB) and Grayscale Bitcoin Trust ETF (GBTC) combined as of March 31, according to an April 25 filing. It happened.

Kansas-based United Capital Management’s Bitcoin ETF holdings were worth about $35 million at the time.

Some people invested more money.

Wolverine Asset Management and Envestnet were managing approximately $54 million and $42 million worth of Fidelity Wise Origin Bitcoin Fund (FBTC), respectively.

Hightower Advisors disclosed that it owns $68 million worth of BTC funds.

We also discovered that the Wisconsin Investment Board purchased 2.4 million shares of BlackRock’s iShares Bitcoin Trust (IBIT) and over 1 million shares of GBTC.

Oh, and hedge fund Millennium Management said it owns about 20 million shares of IBIT, worth more than $844 million.

Many large companies did not respond to requests to discuss this position, but some smaller companies did. Let’s jump in.

Consider appropriate allocation size

“We believe cryptocurrencies deserve to be part of an overall portfolio,” Stephen Korn, Chief Investment Officer at Fielder Capital, told Blockworks.

Korn said he and members of his company were “crypto skeptics” for a while but became more interested in the space in 2020.

The company began allocating capital from high and ultra-high net worth clients to a private cryptocurrency fund operated by Galaxy Digital and GBTC, which was then available over the counter to accredited investors.

The most recent 13F disclosure (showing nearly $15 million in positions in BITB) reflects the recent switch from GBTC to the significantly cheaper Bitwise fund for certain clients, Korn noted. Some Fielder Capital clients continue to invest in GBTC, and the company holds about $8 million worth of Grayscale ETF shares, according to filings.

Fielder Capital works with approximately 110 families and manages approximately $800 million in assets.

Korn said the “vast majority” of the company’s customers have exposure to cryptocurrencies.

“When a new client comes in – unless they are strongly opposed – we typically take a position of between 1.5% and 2% on the entire cryptocurrency,” he explained.

For example, for clients nearing retirement age, their cryptocurrency allocation could be as low as 1%. Korn explained that others may increase their cryptocurrency positions in their portfolios by up to 5% before the company chooses to “re-trim.”

“We assume it could go to zero, and if it goes to zero, we want to make sure it’s still relevant from a customer perspective,” he said of the cryptocurrency position. “But we evaluate every position holistically, based on the entire portfolio.”

For most Fielder Capital clients, allocation sizes between 1% and 5% seem to be a popular choice for those investing money in the space, according to a survey by the Digital Assets Council of Financial Professionals.

The study found that 87% of advisors recommending an allocation to cryptocurrencies are proposing positions between 1% and 5%.

As allocations exceed 5%, “the impact on maximum drawdown rates begins to increase rapidly,” according to an August study by Bitwise Asset Management.

Read more: Bitcoin Allocation Trend for 60/40 Portfolio is Positive: Bitwise

With an allocation of up to 10%, Kansas-based United Capital Management’s clients can go a little deeper into cryptocurrencies than most other firms, according to CEO Chad Koehn.

United Capital Management held about $22 million worth of FBTC as of March 31, according to the filing. He also owned shares of the ProShares Bitcoin Strategy ETF (BITO) worth about $13 million.

Koehn has been interested in Bitcoin for almost the entirety of the asset’s 15-year history. He recalled that he got exposure through GBTC in 2013 when the price of Bitcoin was around $600.

“We bought and sold it like a stock,” he told Blockworks.

However, things evolved with GBTC ultimately converting to an ETF in January. It will be joined by nine other spot Bitcoin funds.

Just before the Jan. 11 launch, Koehn swapped client positions in GBTC for shares of BITO over concerns that the Securities and Exchange Commission could prevent Grayscale’s ETF from coming to market.

United Capital Management later swapped most of its BITO exposure for FBTC, noting that it liked Fidelity’s decision to store its own Bitcoin.

In total, Koehn said his company has “Web3” positions worth about $50 million, including Bitcoin ETF shares. This represents nearly 10% of the $530 million in assets United Capital Management holds at its discretion.

The company has room to include cryptocurrency exposure in its portfolio, categorized between moderate and aggressive, the CEO explained. Most of the $50 million worth of cryptocurrency-related positions are spread across roughly 500 clients.

The Portfolio Role of Bitcoin ETFs and What They Pair with

Bitcoin is known to many as a digital store of value (often likened to gold) that is independent of institutions and exists outside of the fiat currency system.

“Even if you take that away, it’s pretty amazing as a portfolio asset,” Bitwise Chief Investment Officer Matt Hougan said during a panel discussion last month. “It has low correlation with other traditional assets, high liquidity and high return potential.”

In that respect, BTC is similar to early-stage venture capital or private equity funds, although there are no liquidity restrictions, he added.

“We’re definitely trying to capture the growth,” Koehn said of his company’s Bitcoin ETF position. United Capital Management combines exposure to these funds with allocations to shares of Coinbase, MicroStrategy, and Bitcoin miners such as Marathon Digital and CleanSpark.

David Warshaw, founder of The Wealth Plan, said he likes a 1% to 5% cryptocurrency allocation range for interested clients, but the next questions are which crypto assets to include and what positions to replace them with.

Warshaw’s clients typically have relatively small positions in gold, he said. This means he may instead choose to exchange some of his client’s asset positions for cryptocurrency.

“But if an advisor has a 10% gold allocation, it could certainly make sense to take that portion,” he explained. “I think this will be the most comparable asset class.”

The Long Island-based financial institution, which manages about $65 million in assets for 125 households, has selected several spot Bitcoin ETFs as options for its clients.

Additionally, Warshaw uses the Eaglebrook Advisors platform for clients interested in Ether. For others looking for more cryptocurrency exposure, he utilizes Arbor Digital’s multi-coin strategy.

Fielder Capital clients with cryptocurrency allocations are also still investing in gold, Korn said.

Like The Wealth Plan, the company does not limit customers interested in cryptocurrencies to BTC. Customers’ cryptocurrency allocations typically range from 75% to 25% Bitcoin-Ethereum ratio.

Fielder Capital obtains ether exposure through Fidelity or Grayscale Ethereum Trust. This is a product that Grayscale is looking to turn into an ETF.

Read more: Why the SEC Might Reject the Ether ETF and What Happens Next

“We see this as a small component of our overall portfolio that has a lot of potential upside in certain scenarios as governments potentially devalue their currencies,” Korn said. “And there is potential utility in some tokens, smart contracts. We’ll see what happens here.”

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