Wall Street’s reluctant acceptance of Bitcoin has propelled it to all-time highs, as the world’s largest cryptocurrency briefly surged above $69,000 on Tuesday before a wave of profit-taking caused a decline.
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The trajectory of the original cryptocurrency’s ascent may hinge on obscure regulations within major brokerages. Last week, Bloomberg reported that Bank of America Corp.’s Merrill Lynch division and Wells Fargo & Co.’s brokerage arm will begin offering access to US-listed spot-Bitcoin ETFs, as per sources familiar with the matter. However, this approval comes with a caveat: clients must request the products.
Specifically, the two wirehouses have granted approval for the ETFs on an unsolicited basis, meaning that financial advisers cannot recommend the products to their clients (a significant aspect of their role). Conversely, solicited approval would permit advisers to initiate discussions and include the ETFs in portfolios over which they have discretion.
Although this may seem like a minor distinction, it carries significant weight. For most of the 10 spot Bitcoin ETF issuers, unsolicited approval represents a crucial but insufficient step towards accessing the vast sums of money held within wirehouses.
It’s understandable why issuers would be frustrated by this situation. ETF firms are likely facing increased marketing costs to establish the brand recognition necessary for investors to specifically request their ETF. This poses a significant challenge considering the already low fees—most spot Bitcoin ETFs charge 0.3% or less. The equation demands that they attract a substantial asset base to generate profits despite the minimal fee. While industry giants like BlackRock and Fidelity can afford to absorb losses initially, the math is much harsher for smaller issuers struggling to break even.
Nevertheless, the fact that spot Bitcoin ETFs have garnered approximately $8 billion in assets since launch, despite not receiving full-fledged approval from platforms and wirehouses, is quite remarkable. This suggests that a significant portion of these inflows may be coming from retail investors and self-directed financial advisers.
It will be intriguing to observe how this dynamic evolves as approvals continue to come through. The extent to which Bitcoin surpasses its new record high may ultimately hinge on the number of advisers permitted to promote the ETFs to their clients.
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