A January survey by BitWise Asset Management of 600 financial advisors found that 15% were allocating a portion – typically 5% or less – of their clients’ portfolios to crypto in 2021. That’s up from 9% a year ago. one year and 6% two years ago.
Yet 85% of advisors still do not invest in cryptocurrencies for clients.
Over the past two years, cryptocurrencies have gone from a fringe movement to a full-fledged investment mania that, at its peak, was worth $3 trillion. Bitcoin’s price has surged from around $9,000 before the pandemic to nearly $69,000 in November 2021. It’s been part of the meme-trading mania, a big Super Bowl advertiser, and even a source of funding for Ukraine after the Russian invasion.
Financial advisors are advancing slightly. For some, their own trading rules prevent them from holding cryptocurrencies for their clients. Advisors can only recommend regulated investments and there is always regulatory fog surrounding crypto, so many advisors steer clear. The Securities and Exchange Commission has only approved one bitcoin exchange-traded fund so far. For other advisors, volatility and risk are the problem. While volatility doesn’t deter young investors who can afford to take big risks, it’s not for investors who have already spent years building up a nest egg.
Most of Russell Wayne’s clients at Sound Asset Management in Weston, Conn., are in their late 50s or early 60s, he said, at a time when they should be letting go of risk, not in take more. While he’s taken the time to understand how crypto works, he still thinks it’s too risky for his clients.
This risk is evident in the fact that bitcoin is currently down around 36% from its November high.
“I want to make sure they don’t call and say ‘What did you do? “, did he declare.
But customers are increasingly curious about crypto. In the BitWise survey, around 94% of advisors said they received questions about crypto.
Adam Koos, the founder of Libertas Wealth Management Group in Columbus, Ohio, answered questions about crypto and bought a few trust products on behalf of clients, but said he was generally not on the lookout. comfortable carving out a large percentage of his clients’ wallets and putting it in crypto.
It’s a great asset to the trade, he said, given the volatility and wild swings, but it’s much harder to justify as part of a stablecoin portfolio. “When you talk to your clients about stocks or bonds, in almost every case I can say with confidence that they’re not going to zero,” he said.
His biggest concern is that cryptocurrencies have the potential to lose most if not all of their value. “I find it difficult to recommend it as an asset class,” he said.
Barry Ritholtz said a number of his clients at Ritholtz Wealth Management in New York recently wanted him to invest a portion of their portfolios in crypto, just like he would any other asset. This, however, raised logistical problems for him.
To buy a stock, for example, an investor needs a broker to do so on their behalf, and there are a host of other intermediaries who handle all other aspects of trading and custody.
Cryptocurrencies, on the other hand, can be purchased directly from another user, but this poses a problem: if an investor holds it directly, using their own “wallet”, they are responsible for securing it – and there is many stories of people losing access to their own wallets.
Mr. Ritholtz’s solution was to create his own index, developed with WisdomTree and crypto exchange Gemini as custodian. The index, which operates as a separately managed account by a company called OnRamp Invest which holds 15 different cryptocurrencies on behalf of investors, launched in December. It’s not something Ritholtz Wealth includes in its model portfolios, but it’s available to clients who want crypto.
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“You have to listen to what your clients tell you,” he said, adding that he doesn’t advise any of them to hold more than 1% to 2% of their wealth in crypto. About 10% of the firm’s clients, Ritholtz Wealth Management said, have bought the index, which is down about 32%, following the crypto market, since its launch.
For some advisors, crypto can become a way to reach new customers. A survey of 80 Cerulli advisors released in December found that around 30% expected to recommend cryptocurrencies in the future and saw it as a way to differentiate themselves from other advisors.
Financial advisor Melissa Anne Cox of Fetterman Investments in Dallas took the time to learn about crypto so she could talk to her clients about it. She has advised some younger clients on the mechanics of acquiring crypto.
Like many advisers, she said, Fetterman is transitioning into the next generation of investors, so it’s important to understand the new options. But her company hasn’t changed its rules against buying crypto, and she’s not comfortable putting her clients, most of whom are older, into such a risky investment anyway.
“I love educating people about what cryptocurrencies are,” she said. But that doesn’t go any further. “I do not personally buy crypto for my clients. That’s just where I’m at right now.
Corrections & Amplifications
A Cerulli survey found that around 30% of advisors plan to recommend cryptocurrency at some point in the future, and Melissa Anne Cox is a financial advisor at Fetterman Investments. An earlier version of this article incorrectly stated that 30% of advisors had recommended cryptocurrencies and misspelled Ms. Cox’s name. (Corrected March 25.)
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