Bitcoin exchange-traded funds adoption has been slowed by due diligence processes from large trading platforms. 

According to a Feb. 3 report from Bloomberg, companies such as LPL Financial Holdings, one of the largest independent broker-dealers in the United States, are currently examining the recently approved Bitcoin ETFs to determine whether they will be available for nearly 19,000 independent financial advisers overseeing $1.4 trillion in assets.

“We just want to see how they work in the markets,” said Rob Pettman, vice president of wealth management solutions for LPL Financial.

Due diligence is a comprehensive analysis performed before a decision is made. It involves carefully checking all the facts, understanding the risks and opportunities, and ensuring that everything is as it appears before investing money or resources.

LPL Financial plans to complete its due diligence on Bitcoin ETFs in three months. A key point under evaluation is the possibility that ETFs could be shut down if they perform poorly, failing to accumulate significant assets.

“That can be a very negative experience for the investor, for the financial adviser. It’s also incredibly costly for a firm like ours operationally to help to facilitate that,” Pettman told Bloomberg, adding that for LPL, it’s important to “make sure that they [ETFs] are durable over time, that there is a good investment thesis. That’s ultimately the position that we normally come from when evaluating these.”

Data compiled by Bloomberg shows that 253 ETFs closed down in 2023 with an average amount of assets of $34 million. The list includes crypto-tied products, such as VanEck Digital Assets Mining ETF (DAM) and the Volt Crypto Industry Revolution.

Bloomberg’s ETF analyst James Seyffart believes that Bitcoin ETFs’ widespread adoption might be slower than expected. During a private webinar with CryptoQuant held in January, Seyffart predicted ETFs could attract $10 billion in inflows in their first year.

“A lot of the big institutions, these warehouses, these platforms where brokers or advisers work, they can’t just buy anything they want. There’s like an approved list and a not approved list,” the analyst explained. 

“I do not think we’re going to get over $100 billion in the first year or two. [...] To put in perspective, gold ETFs have about $100 billion in the U.S. in total.”

As of Jan. 31, all the Bitcoin ETFs approved last month collectively held 656,421 BTC, up around 3% from the initial total holdings of 637,610 BTC, worth nearly $27 billion at current prices. The ETFs’ performance had been heavily impacted by the outflows from the Grayscale Bitcoin Trust (GBTC) that dumped a total of 132,195 Bitcoin after its conversion from an over-the-counter product to a listed ETF.

“Time is going to tell on the investment thesis. And that’s essentially what we’re monitoring at the moment,” said LPL’s Pettman.