What to know about investing in the first spot bitcoin ETFs

Bitcoin has rallied amid news about possible spot bitcoin exchange-traded funds and other big names entering the digital currency space — and financial experts have tips for investors who want a piece of the action.

The price of bitcoin topped $30,000 on Wednesday as traders grew bullish about spot bitcoin ETF applications from companies such as BlackRock, WisdomTree and Valkyrie. Bitcoin has surged by more than 80% in 2023 but is still more than 50% below its all-time high in November 2021.

U.S. investors currently have access to bitcoin futures ETFs, which invest in bitcoin futures contracts, or agreements to buy or sell the asset later for an agreed-upon price. The long-awaited bitcoin spot ETF, however, would invest in the digital currency directly.

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“I think the spot bitcoin ETF is a watershed moment for bitcoin,” said Douglas Boneparth, a New York-based certified financial planner and president of Bone Fide Wealth. He is a member of CNBC’s Financial Advisor Council.

“It’s a very serious statement to see BlackRock submit that application,” he said, and many crypto advocates believe it’s the beeline for a bitcoin spot ETF product.

A bitcoin spot ETF would provide easier access to the asset, allowing investors to buy and sell the digital currency through a brokerage account. However, “easier accessibility to something doesn’t mean you should dive in headfirst,” Boneparth said.  

If bitcoin spot ETFs are approved, investors should treat them like any other asset, he said. You should always do your own research and your own due diligence before taking risks with your money.

When investors are weighing “high-risk assets” such as bitcoin, the financial services industry may suggest limiting a portfolio to 1% to 5% exposure, Boneparth said. He personally limits speculative assets — such as bitcoin, private equity, hedge funds and more — to 5% to 10% of investable assets, he said.

A small allocation can still have significant upside potential, said Ivory Johnson, a CFP and founder of Delancey Wealth Management in Washington, D.C. He also suggests limiting bitcoin exposure.

“If bitcoin has the potential to double and you have a 2% allocation, that’s huge,” said Johnson, a member of CNBC’s Advisor Council. And if the price plunges by 50%, you only lose 1% of your portfolio, he said.

Of course, your target investment allocations should always depend on your individual risk tolerance, timeline and your goals, Boneparth added.