Ask an advisor: Is a spot bitcoin ETF a good investment?

Welcome back to “Ask an Advisor,” the advice column where real financial professionals answer questions from real people. The topic can be anything in the world of finance, from retirement to taxes to wealth management — or even advice on advising.

Last week, after years of resistance, the SEC approved the spot bitcoin ETF. Specifically, it approved 11 versions of the new exchange-traded fund, offered by brands including Grayscale, Fidelity and iShares.

What makes this product unusual is what’s inside it: actual bitcoin. Unlike derivatives-based bitcoin ETFs, which are based on bitcoin futures contracts, the spot bitcoin ETF’s underlying asset is bitcoin itself. This means more direct tracking of the cryptocurrency’s price, but also more exposure to its volatility.

Though the SEC approved the new funds, its decision was far from a full-throated endorsement. The commission has long been skeptical of the spot bitcoin ETF, and in fact rejected more than 20 applications for this kind of product from 2018 to 2023. It relented only after the U.S. Court of Appeals in Washington, D.C. ruled against one of those decisions.

So when SEC Chair Gary Gensler announced the SEC’s final decision, he did so with obvious reluctance.

“While we approved the listing and trading of certain spot bitcoin ETP [exchange-traded product] shares today, we did not approve or endorse bitcoin,” Gensler wrote. “Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto.”

READ MORE: What financial advisors need to know about SEC-approved spot bitcoin ETFs

The chairman went on to describe bitcoin as a “speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion and terrorist financing.”

So to put it mildly, there are some asterisks on this approval. And yet, it’s here: The spot bitcoin ETF is now available to investors. Can it be a good investment? Will financial advisors recommend it to clients? To find out, I asked the advisors themselves. Here’s what I wrote:

Dear advisors,

Last week, after years of resistance, the SEC approved spot bitcoin ETFs. In approving the ETFs, Chair Gary Gensler pointedly did not endorse bitcoin in general, and cautioned investors once again about the risks of crypto.

So my question is, is a spot bitcoin ETF safer than bitcoin itself? Would you recommend any of these products to clients? If so, to whom? What role could these ETFs play in a portfolio — or do you prefer to stay away from them all together?

Thanks in advance,

Wary in Washington Heights

And here’s what advisors wrote back: