A January survey of 600 financial advisors by BitWise Asset Management found that 15% have allocated a portion — typically 5% or less — of their clients’ portfolios to crypto in 2021. That’s up from 9% a year ago and 6%% two years ago.
Still, 85% of advisors still don’t invest in cryptocurrencies for clients.
In the last two years, cryptocurrencies have gone from being a fringe movement to a full blown investment frenzy, worth $3 trillion at its peak. Bitcoin’s price rose 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 advertiser in the Super Bowl, and even a source of funding for Ukraine after the Russian invasion.
Financial advisors tread carefully. Some keep their own trading rules from holding cryptocurrencies for clients. Advisors can only recommend regulated investments and there is still a regulatory fog over crypto that many advisors just stay away from it. 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 may not deter 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, Connecticut, are in their late 50s or early 60s, he said, at a point where they should dump and stop taking risks. Although he has taken the time to understand how crypto works, he still considers it too risky for his clients.
This risk is reflected in the fact that Bitcoin is currently down around 36% from its November high.
“I want to make sure they don’t call up and say, ‘What the hell have you done?'” he said.
But customers are increasingly crypto-curious. In the BitWise survey, about 94% of advisors said they have questions about crypto.
Adam Koos, the founder of Libertas Wealth Management Group in Columbus, Ohio, has answered questions about crypto and bought some escrow products on behalf of clients, but generally said he’s uncomfortable carving out a large percentage of his clients’ portfolios and it to put into crypto.
It’s a great asset to trade given the volatility and wild swings, he said, but it’s much harder to justify as part of a stable portfolio. “If you talk to your clients about stocks or bonds, in almost all cases I can say with confidence that they’re not going to go 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 them as an asset class,” he said.
Barry Ritholtz said that some of his clients at Ritholtz Wealth Management in New York recently wanted him to invest a portion of their portfolios in crypto like he would any other asset. However, that posed logistical problems for him.
For example, to buy a stock, an investor needs a broker to do so on their behalf, and there are a variety of other brokers to handle all other aspects of trading and custody.
Cryptocurrencies, on the other hand, can be bought directly from another user, but that poses a problem: if an investor holds them directly, using their own “wallet”, they are responsible for securing them – and there are many stories from people who have lost 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 managed by a firm called OnRamp Invest, which holds 15 different cryptocurrencies on behalf of investors, launched in December. It’s not something that 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 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 company’s clients, Ritholtz Wealth Management said, have bought the index, which is down about 32% since its inception following the crypto market.
For some advisors, crypto can become a way to reach new customers. A survey of 80 Cerulli advisors released in December found that about 30% expect to recommend cryptocurrencies in the future, seeing it as a way to differentiate themselves from other advisors.
Financial advisor Melissa Anne Cox of Dallas-based Fetterman Investments has taken the time to educate herself about crypto so she can talk about it with her clients. She has advised some younger clients on the mechanics of crypto acquisition.
Like many advisors, she said, Fetterman is transitioning into the next generation of investors, so it’s important to understand new options. But her firm hasn’t changed her rules against buying crypto, and she doesn’t feel comfortable putting her clients – most of whom are elderly – in such a risky investment anyway.
“I’d like to educate people about what cryptocurrencies are,” she said. But that’s as far as it goes. “I do not personally buy crypto for my clients. That’s exactly where I am right now.”
Corrections & Enhancements
A Cerulli survey found that about 30% of advisors expect to recommend cryptocurrencies at some point in the future, and Melissa Anne Cox is a financial advisor at Fetterman Investments. A previous version of this article incorrectly stated that 30% of advisors recommended cryptocurrencies and misspelled Ms. Cox’s name. (Corrected on March 25.)
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