A January survey from BitWise Asset Management of 600 financial advisers found 15% allocated a portion—usually 5% or less—of their clients’ portfolios in crypto in 2021. That is up from 9% a year ago and 6% two years ago.
Still, 85% of advisers still aren’t investing in cryptocurrencies for clients.
Over the past two years, cryptocurrencies burgeoned from a fringe movement into a full-blown investing mania that at its peak was worth $3 trillion. The price of bitcoin jumped from around $9,000 before the pandemic to nearly $69,000 in November 2021. It has been part of the meme-trading mania, a big advertiser in the Super Bowl and even a source of funding for Ukraine after the Russian invasion.
Financial advisers are treading lightly. For some, their own trading rules restrict them from holding cryptocurrencies for clients. Advisers can recommend only regulated investments and there is still a regulatory fog over crypto, so many advisers just steer clear. The Securities and Exchange Commission has approved only one Bitcoin exchange traded fund so far. For other advisers, the volatility and risk are the issue. While the volatility may not dissuade young investors who can afford to take big risks, it is different for investors who have already spent years building 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 point that they should be laying off risk, not taking on more. While he has taken the time to understand how crypto operates, he still thinks it is too risky for his clients.
That risk is manifest in the fact that bitcoin is currently down about 36% from its November high.
“I want to make sure they’re not calling and saying ‘What the hell did you do?’” he said.
But clients are increasingly crypto curious. In the BitWise survey, about 94% of advisers said they got questions about crypto.
Adam Koos, the founder of Libertas Wealth Management Group in Columbus, Ohio, has been fielding questions about crypto and has bought a few trust products on clients’ behalf, but said in general he isn’t comfortable carving out a large percentage of his clients’ portfolios and putting it into crypto.
It is a great asset to trade, he said, given the volatility and the wild swings, but it is much harder to justify as part of a stable portfolio. “When you talk to your clients about stocks or bonds, in almost all cases I can confidently say 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 have a hard time recommending it as an asset class,” he said.
Barry Ritholtz said a number of his clients at Ritholtz Wealth Management in New York lately have wanted him to invest a portion of their portfolios in crypto, as he would in any other asset. That raised logistical issues for him, though.
To buy a stock, for example, an investor needs a broker to do it on their behalf, and there are a host of other intermediaries that handle all the other aspects of trading and custody.
Cryptocurrencies, on the other hand, can be bought directly from another user, but that presents a problem: If an investor holds it directly, using their own “wallet,” they are responsible for securing it—and there are many stories of people losing access to their own wallets.
Mr. Ritholtz’s solution was to make his own index, developed with
and the crypto exchange Gemini as the custodian. The index, which operates as a separately managed account managed by a firm called OnRamp Invest that holds 15 different cryptocurrencies on behalf of investors, launched in December. It isn’t something Ritholtz Wealth includes in its model portfolios, but it is available to customers who want crypto.
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“You have to listen to what your clients are telling 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 launch.
For some advisers, crypto may become a way to reach new customers. A December survey of 80 advisers from Cerulli found that 30% were encouraging crypto investments and saw it as a way to differentiate themselves from other advisers.
Financial adviser Mellisa Anne Cox of Fetterman Investments in Dallas has taken the time to educate herself about crypto so that she can talk to her clients about it. She has advised some younger clients about the mechanics of acquiring crypto.
Like many advisers, she said, Fetterman is transitioning into the next generation of investors, so it is important to understand new options. But her firm hasn’t changed its rules against buying crypto, and she isn’t comfortable putting her clients—most of whom are older—into such a high-risk investment anyway.
“I like to educate people on what cryptocurrencies are,” she said. But that is as far as it goes. “I don’t personally purchase crypto for my clients. That’s just where I am right now.”
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