The approval of bitcoin ETFs in early 2024 marked a watershed moment for the broader digital asset market. For the first time, investors could gain cryptocurrency exposure through familiar investment vehicles, solving the accessibility problem that had kept many advisors on the sidelines. While access is no longer the challenge, it has also capped the opportunity. The next frontier for crypto is optimization, where advisors can distinguish their practice and uncover new avenues for organic growth.
Tapping Into Crypto’s Structural Tax Advantage
Few investors realize that the IRS wash-sale rule, which restricts loss harvesting in equities and ETFs, does not currently apply to bitcoin or ethereum. Since these digital assets are classified as property, investors can sell at a loss and immediately re-establish their positions, capturing the deduction while maintaining exposure.
The IRS wash-sale rule, which restricts loss harvesting in equities and ETFs, does not currently apply to bitcoin or ethereum.
Under the traditional wash-sale rule, investors who sell a stock or fund at a loss must wait 30 days before buying it back, or the IRS will disallow the loss for tax purposes. That 30-day window is meant to prevent short-term, superficial trades designed solely to capture deductions. But because crypto is treated differently under current IRS guidance, those same restrictions don’t apply — creating a built-in advantage for active, tax-aware advisors who can use volatility to their clients’ benefit.
This dynamic turns crypto’s volatility into a reliable source of tax alpha. Consider a client holding one bitcoin with a $100,000 cost basis. If the price falls to $70,000, the advisor can sell, harvest the $30,000 loss, and repurchase immediately. For a high-income client, that harvested loss can directly offset other gains, without giving up their long-term exposure.
ETFs Offer Simplicity, But At A Cost
Bitcoin ETFs have made crypto investing as simple as a point-and-click trade, allowing investors to gain exposure through a traditional brokerage account without managing digital wallets or private keys. But that convenience comes with an important distinction: ETF investors don’t actually own bitcoin.
Instead, they own shares of a fund that tracks bitcoin’s price, which is a layer removed from the underlying asset. This indirect exposure lets investors mirror bitcoin’s performance, but they have no claim to the asset itself. On the other hand, direct ownership, whether through custody accounts or separately managed account (SMA) structures, allows clients to hold bitcoin in their own name at a qualified custodian, enabling tax-loss harvesting, in-kind transfers and better integration into advisor reporting systems.
Because ETFs stop at price exposure, advisors who rely solely on them gain convenience but lose the ability to optimize. They forfeit the control, tax efficiency and customization that differentiate a proactive advisor from a passive allocator.
Optimizing For Crypto: A New Differentiator
The gap between ETF convenience and direct ownership represents an opportunity for advisors to demonstrate expertise. Those who take the time to understand and implement crypto SMAs today aren’t simply reducing tax drag, they’re expanding the tools available to create bespoke portfolios. It shows diligence, builds credibility and reinforces the advisor’s role as a strategic partner in long-term wealth planning.
Most investors don’t yet fully appreciate the nuances between ETF exposure and direct ownership.
While most investors don’t yet fully appreciate the nuances between ETF exposure and direct ownership, awareness is rising. As education deepens, clients will expect advisors to have a clear framework for integrating digital assets into their broader allocation models. Advisors who engage now can refine their crypto strategies, align with evolving client expectations and position themselves for sustained growth as the market matures.
Building A Better Framework For Digital Assets
Bitcoin and other digital assets don’t behave like traditional securities, and they call for investment structures that reflect those differences. Direct ownership frameworks, particularly crypto SMAs, allow advisors to align crypto allocations with client objectives, risk tolerance and tax considerations.
For now, many advisors view crypto as a small, experimental sleeve, often a single-digit percentage of a portfolio. But as digital assets become more established, clients will expect the same rigor, reporting and tax management that is applied to equities or fixed income. Advisors who gain fluency today can strengthen client conversations and help shape industry standards regarding how digital assets fit into diversified portfolios.
From Access To Optimization
As crypto matures, the role of advisors is shifting from gatekeeper to optimizer. Advisors who understand the structural advantages of digital assets, and the vehicles that preserve them, can add real, measurable value. Implementing direct bitcoin ownership today signals expertise, builds client trust and helps advisors stay ahead as digital assets become a standard part of portfolio construction.
Christopher King is Founder and CEO of Eaglebrook.
