How advisors are making bullish bets on bitcoin

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Bitcoin, often called “digital gold,” has regained its shine lately.
The crypto asset is trading in the US$70,000 range – off from a record high of more than US$73,000 in mid-March – amid massive demand from 10 U.S.-listed spot bitcoin exchange-traded funds (ETFs) launched in January.
Although many advisors are gun-shy of this digital coin because of its wild swings, some have gone down the rabbit hole to learn about the technology behind the crypto asset and recommend it as a portfolio diversifier.
“I’m super bullish on bitcoin,” says Arthur Salzer, founder and chief executive officer of Oakville, Ont.-based Northland Wealth Management Inc., a family office advisory firm. “I think you could see it hit US$100,000 by year-end.”
But he doesn’t expect a surge in the price of bitcoin, the world’s largest cryptocurrency, to be easy. After reaching its recent peak, bitcoin fell below US$63,000 last week – possibly due to some profit-taking – before rebounding.
“Bitcoin is still a very volatile asset, but that volatility is shrinking,” Mr. Salzer says. “The recent 13-per-cent pullback – or even 20- to 25-per-cent pullbacks – will be much less than the 30- to 50-per-cent drawdowns we have seen.”
Like other bulls, his outlook stems from expectations of rising demand for bitcoin as supply falls once the “halving” mechanism, built into the payment network’s underlying blockchain software, takes place in mid-April.
That’s when miners, who now produce 900 bitcoin a day, will see their coin rewards cut in half. This programmed reduction, which occurs every four years, will eventually limit the bitcoin in circulation to 21 million by 2140.
With the upcoming halving event, new bitcoin mined will fall to 450 a day and the shrinking supply will push its price up, Mr. Salzer says. That’s unlike traditional commodities, such as gold or copper, where supply can expand.
His view grew from spending 18 months researching bitcoin starting in 2017. He got a crypto wallet to buy the token through an exchange and met with thought leaders in the space and U.S. firms trying to launch bitcoin ETFs.
When bitcoin was trading around US$10,000 in 2019, his client families began investing in The Bitcoin Fund QBTC-T – Canada’s first regulated bitcoin fund – before it became publicly listed in 2020.
His firm converted those assets into 3iQ Bitcoin ETF BTCQ-T when it became available, and more recently to even lower-fee ETFs. In Canada, he now favours Fidelity Advantage Bitcoin ETF FBTC-T, which slashed its management fee to 0.39 per cent in January.
Some clients have also switched into the U.S.-listed Bitwise Bitcoin ETF BITB-A, which has a management fee of 0.20 per cent.
The Bitwise team donates 10 per cent of its gross profit from that ETF to open-source bitcoin developers, he says. “That keeps improving the bitcoin ecosystem and the bitcoin network.”
Some higher-risk clients had been invested temporarily in the U.S.-listed Grayscale Bitcoin Trust GBTC-A when it traded at about a 40-per-cent discount to net asset value, Mr. Salzer adds.
Depending on risk profile, he typically recommends a 2.5- to 10-per-cent exposure to bitcoin within a total investment portfolio, and that the asset be first held in a tax-free savings account (TFSA). It’s the only crypto asset he recommends.
“You don’t just buy bitcoin and forget it,” Mr. Salzer says. “You do want to rebalance this asset class. … That can potentially reduce returns, but it does reduce volatility and the risk.”
Michael Zagari, associate portfolio manager with Mandeville Private Client Inc. in Montreal, is also upbeat on bitcoin, especially with the new U.S. bitcoin ETFs that show “institutional adoption is taking place now.”
Unlike fiat currency, bitcoin’s appeal is that the ability to print money won’t happen because supply is fixed, and it cannot be manipulated or influenced by politics, Mr. Zagari says. “It’s the only option to preserve your wealth.”
He has also learned to take bitcoin’s volatility in stride. The token sank to about US$16,000 in late 2022 amid the collapse of the FTX crypto exchange, down from its previous all-time high of around US$69,000 in 2021.
Still, bitcoin was the top-performing asset in 2023 with a 156-per-cent gain, followed by the S&P 500 index at 25 per cent, he notes. “From 2013 to 2023, bitcoin was the best-performing asset in eight out of 11 years.”
Mr. Zagari’s interest in this asset began in 2020 after reading the bitcoin white paper, which describes it as a peer-to-peer digital currency using blockchain technology to verify and record transactions. He bought his first bitcoin through a crypto exchange before bitcoin ETFs got the green light in Canada.
He usually suggests a crypto allocation of up to 5 per cent of a total portfolio depending on a client’s risk tolerance. That could also include ether, the world’s second-largest cryptocurrency.
That allocation could reach 7 to 10 per cent if clients also want to own crypto-related stocks, he says, such as Coinbase Global Inc. COIN-Q, a cryptocurrency exchange, and MicroStrategy Inc. MSTR-Q, an enterprise software company whose strategy includes acquiring bitcoin.
Mr. Zagari typically recommends unhedged offerings, such as Purpose Bitcoin ETF BTCC-B-T, Purpose Ether ETF ETHH-B-T and Fidelity Advantage Bitcoin ETF.
For clients who want yield, such as those making the transition to a registered retirement income fund, he likes Purpose Bitcoin Yield ETF BTCY-B-T or Purpose Ether Yield ETF ETHY-B-T, which use a covered-call strategy.
Meanwhile, bitcoin is finding its way into diversified equity and balanced funds. Fidelity Investments Canada ULC invests 1 to 3 per cent of its Fidelity Advantage Bitcoin ETF in its All-in-One Growth and All-in-One Balanced mutual funds and ETFs.
BlackRock Inc., whose iShares Bitcoin ETF IBIT-Q has gained more than US$17-billion in assets since its recent listing, plans to add bitcoin exchange-traded products – including its ETF – to its popular Global Allocation and Strategic Income Opportunities funds.
Other asset managers are likely to jump on this trend too, Mr. Zagari says, or their funds could risk underperforming their peers.
Steve Willems, wealth advisor with Willems Wealth Planning Group at Assante Financial Management Ltd. in Abbotsford, B.C., is also bullish on bitcoin and ether.
In 2020, his curiosity led him to test the waters by getting a digital wallet and buying bitcoin through a crypto exchange.
“I wanted to chart the journey and see if I could understand the concepts,” Mr. Willems says.
He became a convert, saying he sees bitcoin as a store of value or digital gold that can potentially behave differently from other assets in a core portfolio.
“We think about this as an emerging asset class – the hot sauce around the edges of a portfolio,” he says. “It would go into the same bucket as thematic funds or specific sector plays.”
Mr. Willems’ clients hold CI Bitcoin Fund and CI Ethereum Fund, which are liquid alternative mutual fund offerings. These funds hold CI Galaxy ETFs that invest in those cryptocurrencies.
Depending on a client’s risk profile, he recommends bitcoin alone or with exposure to ether to make up 1 to 3 per cent of a total portfolio.
“The portion size should be an amount that they’re comfortable losing and an amount big enough to be interesting if it went up meaningfully,” he says. “You have to assume some magnificent drawdowns will occur.”
During the steep drawdown in 2022, all but one of his clients hung on to their bitcoin exposure and many added to their positions. That made additional compounded returns for them when the price recovered, he says.
With the strong launch of U.S. spot bitcoin ETFs, bitcoin has become more legitimate and more available to individual investors, Mr. Willems says.
“Now you have bitcoin coming into the plumbing of traditional finance. That’s powerful.”
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Editor’s note: A previous version of this article contained an incorrect spelling of Arthur Salzer’s name.