Bitcoin Boom Leaves Gun-Shy Advisors Struggling to Provide Crypto Advice to Clients

Bitcoin Boom Leaves Gun-Shy Advisors Struggling to Provide Crypto Advice to Clients

The breakthrough of cryptocurrency from the financial fringes to the mainstream has been characterized by big investors like Paul TudorJones – and some companies like Microstrategy (MSTR) and Tesla (TSLA) – dipping their toes into Bitcoin (BTC-USD). Even Apple CEO Tim Cook (AAPL) gets in on the action.

Yet some financial advisers and wealth managers appear to be struggling to adapt to the new era, in an industry defined by skyrocketing pricing, ever-changing regulation and growing fraud.

A recent investigation from fintech firm eMoney Advisor found that around 38% of US respondents say their investments are managed by a financial advisor, and 43% said they invest in cryptocurrencies. The data highlights how less than half deal with digital token advice, even as the sector becomes an increasingly hot topic in retail and institutional investing.

Separately, a January survey by crypto investment manager Bitwise found that 94% of surveyed advisors received crypto-related questions from clients. Yet a slim 15% actually allocated money to digital tokens.

Nonetheless, Matt Hougan, CIO of Bitwise, said the industry is “nearing the tipping point for widespread adoption of crypto by financial advisors.” Two years ago, only 6% of advisors allocated to crypto in client accounts; today it is 15% and our survey suggests it will reach almost 30% by the end of the year. »

Crypto’s notorious volatility, in addition to the lack of a Bitcoin exchange-traded fund (ETF) specifically tied to its spot price, may have something to do with it.

A cash ETF has not yet been approved by the Securities and Exchange Commission, although a few new futures-linked funds have found a receptive audience. Several financial advisors Yahoo Finance spoke to recently all suggested that a cash ETF would be the ideal vehicle for clients.

Still, Ric Edelman, founder of the Digital Asset Council of Financial Professionals (DACFP) thinks some advisers are making a mistake by waiting for a bitcoin spot fund. Having first discovered Bitcoin in 2012, Edelman says advisors can easily allocate 1-3% of their client portfolios to cryptocurrency-related assets.

Obviously, crypto is huge, but we’re just not trained in that space at all. Even if you don’t want to recommend it as an investment, we should at least know enough to discuss it.Bonnie Maize, Financial Advisor

Waiting for a spot ETF is “outdated and incorrect thinking,” the author and financial expert recently told Yahoo Finance. Sitting short-term could have negative implications for customer returns, he suggested.

With few exceptions, most crypto assets are not effectively regulated by federal agencies such as the SEC and the Financial Industry Regulatory Authority (FINRA) – a hot topic that shapes the current debate over crypto regulation. This makes a number of advisors reluctant to recommend digital currencies to their clients, especially with cases of fraud and mischief on the rise.

However, there is evidence that some advisors are trying to get smart on crypto. Bitwise’s investigation found that some pay for a certificate with the Digital Assets Council for Financial Professionals, an organization Edelman founded in 2018.

‘Maybe, if they ask’

A representation of the Bitcoin cryptocurrency is seen in front of a stock chart and a U.S. dollar in this illustration taken January 24, 2022. REUTERS/Dado Ruvic/Illustration

Among them is Bonnie Maize, a “stay-at-home mom” from Rossville, Kansas turned financial advisor. She pointed out that aside from avoiding crypto altogether, there is no clear framework for how an advisor should approach the sector.

“Obviously crypto is huge, but we’re just not trained in that space at all,” Maize told Yahoo Finance. “Even if you don’t want to recommend it as an investment, we should at least know enough to be able to discuss it,” she added.

Carl von dem Bussche, Jr., another adviser, also obtained a certificate through Edelman’s organization after some of his clients admitted to having previously invested in the asset class.

Von dem Bussche – who manages the Nashville branch of the Financial Guidance Group, a family-owned financial services company – admitted that his opinion on cryptocurrencies has changed from “no, it looks like it’s made up of nothing” to “maybe, if they ask.”

Still, the risk profile of crypto remains well above what it typically offers clients.

“For our clients who want cryptocurrency and whose risk profiles suggest it might be appropriate for their portfolios, I want to see an SEC-approved spot Bitcoin ETF before we do anything,” insisted Von dem Bussche.

Catherine Valega, advisor and founder of Green Bee Advisory, also obtains the digital asset certificate. She told Yahoo Finance that she’s always curious about what’s next in the world of investing, especially digital tokens, most conversations with clients generally worry her about.

“There is so much hype around cryptocurrency. I have no problem if people want to trade their play money, but before that a lot of them need to cover the basics of financial planning like allocating their 401Ks and other retirement accounts,” Valega told Yahoo Finance.

Eric Balchunas, senior ETF analyst at Bloomberg Intelligence and an avid crypto ETF trend tracker, said the dynamic could put US advisers between “a rock and a hard place.”

“The problem is if you have customers who want something and you refuse to give it to them, they might leave,” Balchunas told Yahoo Finance.

David Hollerith covers cryptocurrency for Yahoo Finance. follow him @dshollers.

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