By Marcelo Sampaio

Bitcoin ETFs reached over $100 billion in assets in the 12 months after they launched in early 2024. But clients seeking to participate in the digital asset market in a risk-appropriate way would be wise to look beyond that wildly popular cryptocurrency. Here's why.

The rapidly improving regulatory environment in D.C. is triggering an avalanche of crypto ETF filings. With Congress working on stablecoin and digital asset market structure legislation, President Donald Trump establishing a Bitcoin strategic reserve and a "digital asset stockpile, " the appointment of veteran investor David Sacks to lead a governmentwide digital assets working group, and the SEC's launch of its crypto task force, the term "pro-crypto" has taken on new meaning, transitioning from a campaign promise to an actionable policy agenda.

The dramatic shift toward crypto presents a large potential opportunity for wealth managers and their clients. But an important question remains: how to capture this opportunity without taking on unnecessary risk.

For many fiduciaries, a well-regulated crypto market should go a long way toward resolving that tension. But that doesn't solve the problem of how to responsibly expose clients to an emerging asset class known for its volatility. The flurry of crypto policy activity this year has also created an uncertain environment for wealth managers to make pragmatic decisions regarding if, when, or how to invest client assets in crypto.

Widening ecosystem. As it stands, Bitcoin dominates crypto allocations. While some investors are comfortable making a concentrated bet on Bitcoin, others seek exposure to the broader ecosystem -- including decentralized application platforms like Ethereum and Solana, blockchain-based financial infrastructure, and emerging use cases like tokenization.

Offering clients diversified exposure provides a way to participate in digital asset growth while managing volatility and reducing single-asset risk. Applying a rigorous, index-based methodology to the massive universe of crypto assets -- an approximately $3 trillion industry -- can help investors access the most promising opportunities without having to individually research, acquire, and custody each asset. We've seen a pattern of diversified crypto exposure emerge in other regions. In Europe and Latin America, multi-asset crypto exchange-trade products have been flourishing for several years, reflecting the demand for accessible, risk-managed exposure that can improve risk-adjusted returns.

The U.S. is at the cusp of a similar transformation that will accelerate as accessibility increases through familiar platforms. This next phase of adoption will revolve around crypto investment vehicles that provide diversification. History shows us that investors tracking an institutional-grade benchmark benefit from having exposure to the long-term winners in an asset class. For example, of the top 10 largest stocks in the Nasdaq 100 in 1999, only Microsoft remains. Crypto should be no different going forward. Dominant assets will evolve over time as use cases are tested and applied.

From speculative to strategic. The era of widespread crypto skepticism is fading, but the primary goal of an advisor remains -- making the best decisions for clients based on risk tolerance, investment objectives, and market opportunities. As regulatory clarity improves and more sophisticated investment vehicles emerge, crypto will increasingly be viewed through the same lens as other asset classes: less as a speculative bet, more as a strategic portfolio allocation.

The demand for Bitcoin ETFs was greatly underestimated early on, even by the most bullish observers. Will the new landscape for crypto prove to be as significant? Time will tell, but advisors who embrace a diversified approach will be best positioned to navigate this next phase of adoption, helping clients benefit from digital asset innovation as advisors manage risk responsibly.

Marcelo Sampaio is co-founder and CEO of Hashdex. Previously, he co-founded Endless in San Francisco, where he served as chief growth officer. He also worked at Microsoft and Oracle. He is a venture capital investor with over 30 investments in Brazil and abroad.

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 14, 2025 15:57 ET (19:57 GMT)

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