Bitcoin: The Game-Theoretical Endgame For IFAs And Institutions

As more and more institutions and advisors allocate funds to bitcoin, those who refuse to join them will risk being left behind.

Will it be a case of "Better late than never, but better early than late"?

TL;DR advisors have to allocate to Bitcoin, because the dam has been breached and it's better to be early than late.

The approval of one or more Bitcoin spot ETFs will be a watershed moment in financial history. This event will signal the legitimization of an asset that has previously been available only to those who are comfortable dealing outside the mainstream TradFi system.

There are plenty of reasons why this might be a bad thing. Not least, a decentralized asset that lies outside of the control of institutions and governments risk being co-opted by precisely those actors.

However, with mainstream legitimacy will very likely come intense pressure on financial advisors. Although crypto is a risky asset, it may be more risky for them not to recommend BTC.

Huge Marketing Campaign

There around a dozen ETFs in the pipeline from major financial institutions, and they will all be competing for customer dollars.

On the one hand, that will mean reducing their fees to as low a level as possible, to attract traders and investors. It will also mean a major marketing campaign to ensure that people understand that bitcoin (at least, the bitcoin held by trusted parties like BlackRock and Fidelity) should be a part of every investor's portfolio, and—although they won't say so in as many words—should no longer be considered a currency of criminals and the darkweb.

In short, with even a small fraction of the trillions of dollars of customer money these institutions manage poised to find its way into an intriguing new opportunity, they won't let the opportunity go to waste. No one will miss the fact that regular people can invest in bitcoin from their usual share-dealing platforms.

Herd Mentality

It's hard to go against the flow. In evolutionary terms, being different can be risky, which is why contrarians tend to get so much abuse (no matter how successful). Herd mentality is a powerful psychological force. When BlackRock et al start their marketing, financial advisors may be wary of expressing a different view.

Putting that aside for one moment, let's imagine you're a financial advisor or an institution who doesn't know (or even care) much about bitcoin. All you know is that it's a new option on the market, that a significant percentage of your peers are seriously considering allocating to it, and that the number is only likely to get higher over time.

Do you get in early, or wait to see how safe it really is? And if you choose to wait, how long do you wait, mindful of the fact that at some point, you risk being a laggard and losing the opportunity to make gains?

Moreover, what do you do if your clients want to make an allocation to bitcoin? Refuse them and have them go to a competitor, losing those fees?

Put simply, not suggesting at least a small allocation to bitcoin might be risky for financial advisors. All that this requires is for a critical mass of advisors to get on board, and the rest might follow. In fact, we might already be there.

Meanwhile, Ric Edelman, the founder of Edelman Financial Services, a $250 billion asset management firm, says financial advisors are waiting for spot BTC ETF approvals to come in so that they can begin providing BTC to clients.
Edelman had predicted a surge with spot BTC ETFS during an interview with Laura Shin, noting that up to 12% of advisors currently recommend Bitcoin, while 47% own the asset and embrace it as an innovative technology.  With potential to “deliver outsized investment returns.” He also advised a cautious 1% portfolio allocation to crypto.

Changing Winds

As major financial institutions come around to bitcoin and start pushing it on their clients, it's reasonable to expect mainstream media and talking heads who were once skeptical to change their tune, too.

Once again, this process may already be underway. The Financial Times, which very much represents the legacy financial sector, has been almost universally negative in its coverage of Bitcoin. Now, following some publicity around a new study about Bitcoin's ESG credentials, they might be paving the way for a change of heart.

We can expect other former skeptics of the TradFi media to follow suit. After all, they represent the consensus position. When the consensus changes, do they really want to be on the wrong side of that?

Bitcoin will be 15 years old in January. Its a teenager, still looking to find its place in the world. In another five or ten years, though, it will be nothing particularly remarkable for the majority of investors—just one of many assets that make up the average diversified portfolio.

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