By David Randall
NEW YORK (Reuters) – The roller coaster ride in bitcoin since the beginning of the year has not dampened wealth manager Jim Paulsen’s enthusiasm for the cryptocurrency.
However, Paulsen, chief investment officer of Leuthold Group, which manages $ 1 billion, cannot own bitcoin in client portfolios due to regulatory restrictions. This has left him on the sidelines as the world’s most popular currency control has risen more than 900% since the low in March in volatile trading, which also led to bitcoin losing more than 20% within a few days.
“What I like about bitcoin is … its correlation with stocks and other assets is extremely independent,” said Paulsen, who remains frustrated because he cannot own it for customers.
The promise of an asset class that behaves differently than stocks or bonds lets portfolio and wealth managers confuse their own cryptocurrencies when they can.
Many consider bitcoin to be a good inflation hedge. Nearly 20% of advisers are considering investing in cryptocurrency this year due to inflation concerns, compared to 6.3% in 2019, according to a Citi report.
Yet a number of advisers say they cannot own bitcoin for their clients until they can keep it in an exchange-traded fund or investment fund that removes legal barriers common to any investment.
If that happened, institutional money could flow in and push the asset class higher, analysts said.
BlackRock Inc., the world’s largest asset manager, said on January 21 that it was adding bitcoin futures contracts as eligible investments for certain funds. Fund experts expect other asset management firms to follow suit.
However, the U.S. Securities and Exchange Commission does not yet recognize cryptocurrencies as a security such as a stock or a bond, and has not decided whether mutual funds can own them directly, said Robert Jenkins, global head of research at Refinitiv Lipper. , said. It therefore remains unclear whether investment funds currently own bitcoin because they do not have to disclose it, he said.
In the United States, eight businesses have been unsuccessfully trying to create a bitcoin ETF since 2013, according to Todd Rosenbluth, director of ETFs and mutual fund research at the CFRA in New York.
The SEC did not respond to questions regarding this article.
Funds like the popular ARK Invest ETF line that has positions in bitcoin do so through shares of the Greyscale Bitcoin Trust, a stock exchange that owns a fixed number of bitcoin units and often trades at a premium against the value of its underlying portfolio.
Securities regulators in Canada approved the world’s first bitcoin ETF on February 12, prompting some investors to hope that US regulators will follow soon.
President Joe Biden, nominated for the head of the SEC, Gary Gensler, spoke at length in a confirmation hearing on Tuesday about critical currencies and suggested that the agency should give more regulations on how it views the asset class. Some investors have accepted his appointment to increase the likelihood that a bitcoin ETF will be approved for the US
Gensler “seems more crypto-friendly than previous supervisors,” said Viraj Patel, head of asset allocation at Fiduciary Trust International, which has not yet made investments in asset classes for clients but is awaiting a US ETF. “We’re really looking at cryptocurrency through the lens of this can be gold 2.0,” Patel said.
Rosenbluth said he was skeptical of a product being approved this year, saying there was a high standard to be clear on market manipulation and audit oversight.
Even in the absence of an ETF, retail interest remains ‘strong with no signs of declining’, JP Morgan analysts wrote in a February 16 research note.
According to asset manager CoinShares, cryptocurrency funds and products that investors can buy directly raised nearly $ 5.6 billion in assets in 2020, more than 600% higher than the year before. Cryptocurrency funds have raised $ 4.2 billion in cash flow for this year to March 1, Coinshares said.
“Not allowing the purchase of cyrpto is frustrating for many advisers, but it is such a volatile asset that many investors do it on their own,” said Jimmy Lee, CEO of Wealth Consulting Group.
(Reporting by David Randall; Editing by Megan Davies, Ira Iosebashvili and David Gregorio)