How are advisers using bitcoin ETFs in client portfolios? It depends.

While we now have a better sense of who is, or was, invested in bitcoin ETFs, how these products are being used is a different story.

Various institutions have been filing so-called 13F filings in recent weeks, giving a glimpse into the buyers of the spot bitcoin ETFs that attracted big demand after their January launches , and the size of the positions.

Advisers and their clients are considering allocations anywhere from 1% to 10%, financial professionals told Blockworks — sometimes pairing bitcoin ETF holdings with exposure to crypto stocks, ETH and other assets.

And what might these positions be taking the place of? That depends.

An April 25 filing showed Tennessee-based Fielder Capital held roughly $23 million worth of the Bitwise Bitcoin ETF (BITB) and the Grayscale Bitcoin Trust ETF (GBTC) combined, as of March 31.

The bitcoin ETF holdings of Kansas-headquartered United Capital Management’s amounted to roughly $35 million at that date.

Some have put even more money in.

Wolverine Asset Management and Envestnet had about $54 million and $42 million worth of the Fidelity Wise Origin Bitcoin Fund (FBTC), respectively, under its control.

Hightower Advisors disclosed owning $68 million worth of BTC funds.

We also found out that the State of Wisconsin’s Investment Board bought 2.4 million shares of BlackRock’s iShares Bitcoin Trust (IBIT) and over a million shares of GBTC.

Oh yeah, and hedge fund Millennium Management revealed owning about 20 million IBIT shares worth more than $844 million.

While a bunch of the bigger players didn’t return requests to discuss these positions, some smaller firms did. Let’s jump in.

Mulling an appropriate allocation size

“Our view has been [that crypto] deserves to be part of a holistic portfolio,” Fielder Capital Chief Investment Officer Stephen Korn told Blockworks.

Korn said he and members of his firm were “crypto skeptics” for a while before becoming more interested in the space in 2020.

The firm began allocating capital from its high-net-worth and ultra-high-net-worth clients to a private crypto fund run by Galaxy Digital, as well as GBTC, which at that point was available over the counter to accredited investors.

Its most recent 13F disclosure — showing a nearly $15 million position in BITB — reflects a more recent switching out of GBTC into the significantly cheaper Bitwise fund for certain clients, Korn noted. Some Fielder Capital clients remain invested in GBTC, with filings showing the firm held Grayscale ETF shares amounting to about $8 million.

Fielder Capital works with roughly 110 families and manages roughly $800 million in assets.

The “vast majority” of the firm’s clients have crypto exposure, Korn said.

“When a new client has come on — unless they’re strongly opposed — we’ve taken that position generally between 1.5% to 2% toward overall crypto,” he explained.

A crypto allocation, when made, could be as low as 1% in the case of clients around retirement age, for example. Others may have a crypto position appreciate to as high as 5% in a portfolio before the firm may choose to “trim it back,” Korn explained.

“We assume it can go to zero, and we want to make sure that if it goes to zero, it’s still appropriate from a client standpoint,” he said of crypto positions. “But we size all positions holistically on an overall portfolio basis.”

The allocation size between 1% to 5% for most Fielder Capital clients seems to be a popular choice for those putting money toward the space, according to a survey by the Digital Assets Council of Financial Professionals.

The findings showed that 87% of the advisers who recommend an allocation to crypto are suggesting a position between 1% and 5%.

As allocations go beyond 5%, “the impact on maximum drawdowns began to increase rapidly,” according to an August study by Bitwise Asset Management.

Read more: Bitcoin allocations trend positive for 60/40 portfolios: Bitwise

Clients of Kansas-based United Capital Management may be a bit deeper into crypto than those of most other firms, with allocations of up to 10%, according to CEO Chad Koehn.

United Capital Management held about $22 million worth of FBTC as of March 31, filings show. It also owned shares of the ProShares Bitcoin Strategy ETF (BITO) amounting to about $13 million.

Koehn has been interested in bitcoin for nearly all of the asset’s 15-year history. He recalled getting exposure via GBTC in 2013 when bitcoin was at about $600.

“We pretty much bought and sold that like a stock,” he told Blockworks.

Things have evolved though, as GBTC would ultimately convert to an ETF in January. It would be joined by nine other spot bitcoin funds .

Just days before the Jan. 11 launches, Koehn swapped client positions in GBTC with shares of BITO out of fear the Securities and Exchange Commission might not let Grayscale’s ETF come to market.

United Capital Management later on swapped a majority of its BITO exposure for FBTC, noting that it liked Fidelity’s decision to custody its own bitcoin.

In all, Koehn said his firm holds about $50 million worth of “Web3” positions, which includes the bitcoin ETF shares. That represents nearly 10% of the $530 million or so assets that United Capital Management has under its discretion.

The firm has leeway to include crypto exposure in portfolios labeled between moderate and aggressive, the CEO explained. The majority of those $50 million worth of crypto-related positions is spread across roughly 500 clients.

Bitcoin ETFs’ portfolio role, and what it’s paired with

Bitcoin has become known to many as a digital store of value — often likened to gold — that does not rely on institutions and exists outside of the fiat currency system.

“Even if you strip that away, as a portfolio asset it’s pretty amazing,” Bitwise Chief Investment Officer Matt Hougan said during a panel discussion last month. “It has low correlations to other traditional assets, it’s liquid, it has high return potential.”

In that way, he added, BTC is similar to early-stage venture capital or private equity, albeit without the liquidity restraints.

“We’re definitely trying to capture growth,” Koehn said of his firm’s bitcoin ETF positions. United Capital Management pairs exposure to those funds with allocations to the stocks of Coinbase, MicroStrategy and bitcoin miners like Marathon Digital and CleanSpark.

David Warshaw, founder of The Wealth Plan, said while he likes the 1% to 5% crypto allocation range for interested clients, the next questions are which crypto assets to include and what the position will be replacing.

Warshaw’s clients typically have a relatively small position to gold, he said — meaning he might instead choose to swap a portion of a client’s equity position to put toward crypto.

“But obviously if an adviser has a 10% gold allocation, it might make sense to take from that,” he explained. “I think that might be the asset class that is most comparable.”

The Long Island-based financial profession, whose firm manages about $65 million in assets for 125 households, has selected several of the spot bitcoin ETFs as options for his clients.

Beyond that, Warshaw uses the Eaglebrook Advisors platform for clients also interested in ether. For others who want even more crypto exposure, he utilizes a multi-coin strategy by Arbor Digital.

Fielder Capital clients with a crypto allocation remain also invested in gold, Korn said.

Like The Wealth Plan, the firm also doesn’t limit crypto-interested clients to BTC. A client’s crypto allocations generally have a 75% to 25% bitcoin-to-ether split.

Fielder Capital gains ether exposure via Fidelity, or the Grayscale Ethereum Trust — a product Grayscale is trying to convert to an ETF .

Read more: Why the SEC could choose to deny ether ETFs, and what could happen next

“We think about it as a small component of an overall portfolio that’s got a lot of potential upside in certain scenarios as governments potentially debase currency,” Korn said. “And then there’s the potential utility of some of the tokens, smart contracts…where we’ll see what happens.”