By David Randall
NEW YORK (Reuters) – The bitcoin-boosting race since the beginning of the year has not dampened wealth manager Jim Paulsen’s enthusiasm for cryptocurrency.
Still, Paulsen, chief investment officer at the Leuthold Group, which manages $ 1 billion, cannot own bitcoin in client portfolios due to regulatory restrictions. That set him aside, watching the world’s most popular cyrptocurrency rise more than 900% since its March casualties in volatile trades, which also saw bitcoin lose more than 20% in the space of a few days.
“What I like about bitcoin is … its correlation with stocks and other assets is extraordinarily independent,” said Paulsen, who remains frustrated at not being able to own it for customers.
The promise of an asset class that behaves differently than stocks or bonds is leaving portfolio and equity managers scrambling their own cryptocurrencies, if they can.
Many see bitcoin as a good protection against inflation. Nearly 20% of consultants are contemplating investing in cryptocurrencies this year due to concerns about inflation, up from 6.3% in 2019, according to a report by Citi.
Still, several consultants say they cannot own bitcoin for their clients until they can keep it in an exchange-traded or mutual fund that clears common legal barriers to any investment.
If that happens, institutional money could flow and push the asset class up, analysts said.
BlackRock Inc, the world’s largest asset manager, said on January 21 that it was adding bitcoin futures as eligible investments for certain funds. Fund experts expect other asset management companies to follow suit.
Even so, the United States Securities and Exchange Commission does not yet recognize cryptocurrencies as securities like stocks or bonds, and has not determined whether mutual funds can directly hold them, said Robert Jenkins, global head of research at Refinitiv Lipper. Therefore, it is still unclear whether any mutual funds currently have bitcoin because they are not required to disclose it, he said.
In the United States, eight companies have tried unsuccessfully since 2013 to create a bitcoin ETF, according to Todd Rosenbluth, director of ETF and mutual fund research at the New York CFRA.
The SEC did not answer the questions in this article.
Funds like the popular ARK Invest ETF line, which has bitcoin positions, do so through the shares of Greyscale Bitcoin Trust, a publicly traded fund that holds a number of bitcoin units and often trades with a premium on value of its underlying portfolio.
Canada’s securities regulators approved the world’s first ETF bitcoin on February 12, leading some investors to expect U.S. regulators to follow soon.
President Joe Biden’s nominee to head the SEC, Gary Gensler, spoke broadly about cryptocurrencies at a confirmation hearing on Tuesday, suggesting that the agency should provide more regulation on how it views the asset class. Some investors considered his nomination to increase the likelihood that an ETF bitcoin will be approved for the U.S.
Gensler “looks more crypto-friendly than previous supervised people,” said Viraj Patel, head of asset allocation at Fiduciary Trust International, who has not yet made investments in the asset class for clients, but is waiting for an ETF with headquarters in the United States. “We are really looking at cryptocurrency through the lens that this could be 2.0 gold,” said Patel.
Still, Rosenbluth said he does not believe a product will be approved this year, saying there would be a high barrier to be resolved linked to market manipulation and custody auditing.
Even in the absence of an ETF, retail interest “remains strong, with no signs of abating,” JP Morgan analysts wrote in a February 16 research note.
Overall, the funds and cryptocurrency products that investors can buy directly generated nearly $ 5.6 billion in assets in 2020, an increase of more than 600% over the previous year, according to asset manager CoinShares. Cryptocurrency funds have collected $ 4.2 billion in cash flows this year through March 1, Coinshares said.
“Not allowing the purchase of cyrpto is frustrating for many consultants, but it is such a volatile asset that many investors end up doing it on their own,” said Jimmy Lee, chief executive of the Wealth Consulting Group.
(Reporting by David Randall; editing by Megan Davies, Ira Iosebashvili and David Gregorio)