What to know about investing in early spot bitcoin ETFs [Advance Cash ]

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  • The price of bitcoin surged above $30,000 this week as investors grew bullish on the potential of spot bitcoin exchange-traded funds and other big names entering the digital currency space.
  • However, financial advisers urge investors to do their own research and understand their risk tolerance before taking the plunge.

jonathan raa | Nurphoto | Getty Images

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 advice for investors who want a part of the action.

The price of bitcoin surged above $30,000 on Wednesday as traders grew bullish on bids for spot bitcoin ETFs from companies including BlackRock, WisdomTree and Valkyrie. Bitcoin jumped over 80% in 2023, but is still over 50% below its November 2021 all-time high.

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

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"I think the bitcoin spot 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 is a very serious statement to see BlackRock submit this application,” he said, and many crypto advocates believe this is the straight line for a spot bitcoin 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 due diligence before taking chances with your money.

Easier accessibility to something doesn't mean you have to dive in head first.

Douglas Boneparth

President of Bone Fide Wealth

When investors assess "high risk assets" such as bitcoin, the financial services industry may suggest limiting a portfolio's exposure to 1% to 5%, 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, CFP and founder of Delancey Wealth Management in Washington, DC. He also suggests limiting bitcoin exposure.

"If bitcoin has the potential to double and you have a 2% allocation, that's huge," CNBC advisory board member Johnson said. And if the price dives 50%, you only lose 1% of your portfolio, he said.

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