Everyone Has Crypto FOMO, but Does It Belong in Your Portfolio?

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A growing array of investment options make it easier to put digital tokens alongside traditional investments. Here’s what to know.

Larry David travels through the ages, pooh-poohing many of the world’s greatest innovations — indoor plumbing, the dishwasher and, lastly, cryptocurrency. “Don’t be like Larry,” the Super Bowl commercial urges. “Don’t miss out on the next big thing.”

The presence of a boomer comedian pitchman, though, is just the latest sign that crypto has left behind its bleeding-edge roots. Institutional investors are pouring billions into digital tokens, athletes and mayors are taking part of their salaries in cryptocoins, and you may have already run into a Bitcoin A.T.M. at your grocery store.

And then there are Bitcoin’s FOMO-inspiring, albeit insanely volatile, price movements: After peaking near $69,000 on Nov. 9, it was recently trading at about $39,300 — still almost five times its value in March 2020, according to Coinbase.

It’s challenging for a casual observer to disentangle the hype from any true potential, and yet it’s also hard to shake that feeling: Are digital tokens worthy of a spot in my portfolio? Are they even a viable asset class at all?

There are conflicting signals: The White House is moving toward developing a policy approach to crypto, but federal regulators overseeing workplace retirement plans all but banned it from those most sacred of accounts.

Even so, a growing share of steely buy-and-hold investors are being tempted. In a recent Bitwise/ETF Trends survey of financial advisers — who tend to be hired by the non-YOLO set — 16 percent said they had allocated crypto to their clients’ portfolios in 2021, up from 9 percent in 2020.

That’s not surprising: There are more ways in than ever.

It has been easy enough to open a basic account to buy cryptocurrency on the big trading platforms like Coinbase or Gemini, and it’s even possible through apps like PayPal or Venmo. But crypto is trickling deeper into traditional investment realms: Several Bitcoin-linked exchange-traded funds hit the market in 2021, making it possible to just click “buy” in any brokerage account. Just last month, Betterment — an established roboadviser known for managing staid portfolios of cheap but reliable index-related funds — bought a firm that provides baskets of cryptocurrencies and related assets.

And there’s a steady beat of developments: BlackRock and Charles Schwab recently filed to register funds that track the crypto economy, while other providers continue to lobby regulators to let them unleash more products.

But even digital currency evangelists admit that investing in Bitcoin and its brethren remains a largely speculative bet on an unknown future.

“This is a fast-moving market, and it’s hard to know where it will go,” said Matt Hougan, the chief investment officer at Bitwise Asset Management, which has $1.3 billion under management in roughly a dozen crypto-related funds.

Cryptocurrencies and their blockchains — the open and communally maintained electronic ledgers that record transactions — have potential that we don’t fully understand, Mr. Hougan said. Think of it like trying to guess the internet’s future in the early 1990s.

“The internet clearly represented a new way to distribute information and could have major consequences,” he wrote in a report. “But moving from that to predicting that people would, for example, regularly use smartphones to rent out a stranger’s house rather than staying in a hotel is a whole different matter.”

As enticing as it is to think you’re getting in on the next Google, it’s worth remembering that the dot-com boom went bust. Even Mr. Hougan believes regular investors should tread carefully when deciding how much of their portfolio to commit.

“Above 5 percent, it becomes the driver of the most painful drops in your portfolio,” he said. “It becomes very risky.”

The curious do not lack for choice. There are nearly 9,700 coins and tokens collectively valued at $1.9 trillion, according to CoinMarketCap, which tallies coins that meet certain minimum criteria. Bitcoin, which has been around for 13 years and is now legal tender in El Salvador, accounts for roughly 42 percent of that value. Ether, which has been around since 2015 and has more sophisticated abilities that allow it to be used in payroll and other arrangements, is roughly 18 percent.

Fidelity, which is better known for its giant 401(k) business but now has an arm dedicated to holding crypto for institutional investors, believes Bitcoin should be viewed separately from the rest of the pack, with potential as an alternative currency or store of value, like gold.

“It just makes sense as an entry point for most investors,” said Chris Kuiper, director of research at Fidelity Digital Assets.

There’s no consensus, of course: Some experts suggest cryptodiversification. But no matter your preferred strategy, there are a variety of ways in, which are familiar to many investors.

Vincent Tullo for The New York Times

One of the latest and potentially most seamless ways comes from Betterment, which recently bought Makara, a registered investment adviser that offers a series of ready-made, indexed crypto portfolios that provide direct exposure to the assets themselves.

There are dedicated baskets for Bitcoin and Ether, and a “blue chip” basket that holds the 10 largest digital assets on Makara’s platform. A so-called DeFi, or decentralized finance, basket — one of its more speculative — goes a step further and invests in companies that aim to recreate financial services without the middlemen, using blockchain and other technologies. Baskets with different assets charge a fee of 1 percent annually (a Bitcoin- or Ether-only basket does not charge fees), and the firm passes on trading costs of up to 0.35 percent.

Sarah Levy, chief executive of Betterment, said the company was still working through exactly how it would integrate Makara. But there will be disclaimers: “Part of what we will do as a fiduciary is explain that there is more risk,” she said.

Betterment said it wouldn’t recommend that customers put any more than 10 percent of their holdings on the platform into crypto, but it will “give customers agency within that context to make their own decisions,” Ms. Levy said.

Exchange-traded funds, which are baskets of investments that trade like stocks, may appear to be an efficient solution, but analysts and other experts say those available now probably aren’t the best way to buy and hold.

The reason: Instead of holding the cryptocurrency itself, these E.T.F.s invest in futures contracts — essentially agreements to buy or sell an asset at a certain price sometime later. That can end up being more expensive because the contracts expire — and must be sold and repurchased, or “rolled,” each month. Those costs can be potentially significant, particularly when the new contracts cost more than the previous month’s, causing managers to buy high and sell low. Investors must also pay annual fees between 0.65 and nearly 1 percent.

“Futures-based E.T.F.s are a lousy option for long-term exposure to Bitcoin,” Ben Johnson, an analyst at Morningstar, wrote in a note. “Roll costs and fund fees will likely lead these funds’ long-term returns to lag the performance of Bitcoin — probably by a wide margin.”

None of that stopped money from pouring into the first Bitcoin-linked E.T.F., ProShares Bitcoin Strategy E.T.F. Its trading volume on its first day in October surpassed any other E.T.F. in history, according to Morningstar, and it collected $1 billion in assets faster than any other E.T.F.

Several similarly structured funds have followed: Valkyrie Bitcoin Strategy E.T.F., VanEck Bitcoin Strategy E.T.F. and Global X Blockchain & Bitcoin Strategy E.T.F., which, besides Bitcoin futures, invests in another E.T.F. that holds blockchain-related stocks.

Thus far, U.S. regulators have denied applications for E.T.F.s that would hold cryptocurrencies directly. The head of the Securities and Exchange Commission, Gary Gensler, recently said the futures market was more heavily regulated, making it a safer bet for investors.

Other fund vehicles hold crypto directly, but they’re grappling with different structural problems and carry higher fees, which are a drag on returns.

Grayscale Bitcoin Trust, the largest Bitcoin vehicle, with $27 billion in assets, costs 2 percent and trades on the “over the counter” market. But these trusts don’t have the flexibility of regular mutual funds and E.T.F.s to balance supply and demand, so their share prices may deviate from Bitcoin’s price. Another provider, Osprey Bitcoin Trust, became available (for a fraction of Grayscale’s cost) in February, but it faces the same challenges.

Grayscale, Bitwise and other providers have said converting to an E.T.F. structure would solve these problems, but they haven’t received the green light from regulators, who worry that the underlying coins may be subject to manipulation and fraud. (E.T.F.s that hold actual coins do exist elsewhere, though — the Fidelity Advantage Bitcoin E.T.F., for example, is available in Canada.)

Investors seeking professional guidance may find that more financial advisers now have firsthand cryptocurrency experience — some of which may be driven by an effort to educate themselves and field questions with more confidence. About 47 percent of advisers reported owning crypto assets in 2021, according to the Bitwise/ETF Trends survey, which polled 619 advisers. That was nearly double the result the previous year.

One adviser, Ritholtz Wealth Management, has gone as far as introducing, with partners, a crypto-related index providing broad exposure for its clients through a separately managed account. It charges 0.50 percent annually, and has a sign-up fee of 0.70 percent.

Crypto is “hard to ignore at this point,” said Michael Batnick, Ritholtz’s director of research.

Cristina Guglielmetti, a financial adviser in Brooklyn, called the vast majority of her clients “prime crypto-curious”: “mid-40s, familiar with tech/pop culture — it’s all around them.” She tries to understand why they want crypto, while making sure they’re aware of its place in their investment mix.

“Are we putting off other goals so you can do this?” she said. “Or have we handled everything else that needs handling, and now you’re in a good place to be doing more speculative things?”

That makes cryptocurrencies just like any other boom-or-bust investment, Ms. Guglielmetti said.

“We just have to understand what role it’s playing for you,” she said. “Having some fun and exploring new things is a perfectly valid role.”

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