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Bitcoin is bringing out the pit bull in investment advisers.

Though bitcoin has sagged a bit in price lately, its path over the past 12 months has taken it from US$6,700 to around US$53,000. If anything, this rise has hardened advisers against bitcoin. Many flatly reject it for the portfolios of clients who are investing for long-term goals such as retirement.

Bitcoin and other cryptocurrencies have until recently been an exotic asset that you had to hold in either a “hot” or “cold” wallet. Hot wallets are accessed online on a computer or mobile device, while cold wallets are a piece of hardware. The recent arrival of crypto-holding exchange-traded funds has changed the game. Now, you can buy bitcoin exposure as easily as any stock.

I recently asked advisers on LinkedIn if they were starting to use bitcoin ETFs in client portfolios and, if so, what was their allocation and rationale? The responses were striking on two counts – sparse replies from a group that usually loves to chime in, and strongly negative responses from several of the people who did reply.

One of those negative comments came from Richard Morin, chief executive at Archer Wealth Management in Montreal and onetime head of National Bank of Canada’s online brokerage arm. “I wouldn’t be surprised if bitcoin was above $100,000 in a few months,” he said in an interview. “But I’m still very comfortable telling all my clients it doesn’t belong in their portfolio.”

Mr. Morin said he doesn’t understand how bitcoin could ever deliver on its promise of becoming a widely used currency or store of value. For him, even a small weighting is out.

“I’m basically a risk manager,” he said. “My job is to eliminate scenarios where clients don’t meet their retirement objectives. One scenario [with bitcoin] is losing 3, 5 or 10 per cent of your portfolio. I don’t want to take that risk, and my clients agree with me.”

Portfolio manager Ben Felix of PWL Capital in Ottawa said he avoids bitcoin for the same reason as gold – it produces no cash flow, which makes it hard to judge expected returns. “I have not and will not invest in bitcoin,” he said by e-mail. “I have nothing against bitcoin and it’s great that some people have managed to gain wealth from it. But as an investor it is not something that interests me.”

In a Portfolio Strategy column back in late 2017 that touched on bitcoin’s rise that year, Sheryl Purdy of Calgary-based Leede Jones Gable said she was staying away from bitcoin. She reaffirmed recently that she still avoids it.

Her thinking is that there are too many speculators who are trading cryptocurrencies without knowing what they’re doing. “Yes, I understand what bitcoin is, and spent months diving into it to figure out if this was something my clients should own,” she said by e-mail. “I wouldn’t touch it with a 10-foot pole.”

Darryl Brown, a chartered financial analyst (CFA) and independent investment adviser, said he sees a case for holding something like 3 per cent to 7 per cent of a portfolio in cryptocurrency to enhance diversification. The idea is to hold an asset that isn’t driven by the same economic and financial market factors as stocks and bonds. Traditionally, gold has served this role.

One of the objections advisers have toward bitcoin is that it’s not really clear what is driving demand. Mr. Brown said there’s perceived value in cryptocurrencies, and he dismisses the idea that their market price could crater.

“Could it go to zero? Sure, but the likelihood of that is very low,” he said in an interview. “It’s absurdly low to use it as an excuse to not hold any in your portfolio.”

The list of TSX-listed cryptocurrency ETFs is set to grow substantially this year, with several products waiting for regulatory approval. Among those already approved and listed for trading are the Purpose Bitcoin ETF CAD-hedged (BTCC.B), the Evolve Bitcoin ETF (EBIT) and the CI Galaxy Bitcoin ETF (BTCX.B). Coming ETFs will expand the crypto lineup to include ether, the second-largest cryptocurrency after bitcoin.

Two advantages of these ETFs: They allow investors to put crypto in a tax-free savings account or registered retirement savings plan, and they eliminate the need to get a crypto wallet. What still needs to be established is how well these funds track up and down moves in the price of cryptocurrencies, and how they would behave if crypto prices crashed.

Even tame ETF categories can temporarily run into trouble in a market plunge. In the financial market turmoil of last March, bond ETFs briefly traded at big discounts to their net asset value before righting themselves.

Some advisers say they’re reluctant to voice an opinion on cryptocurrencies because a negative take can brand them as a fossil who doesn’t understand the promise of crypto as a form of payment that exists outside the traditional currency system.

This may explain Ms. Purdy’s relief on finding out that many advisers agree with her view on avoiding bitcoin in conventional investment portfolios. “Phew,” she e-mailed back. “Glad to see I am not in left field.”

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