2021-04-12 18:37:30

Cryptocurrency nears adviser tipping point as players pile in

Wealth managers are close to a tipping point on cryptocurrency, and any one of several ongoing developments could prod the industry to tighten its embrace of the emerging asset class, according to a new study.

About 10% of financial advisers currently recommend cryptocurrency holdings to at least some clients, according to the recent white paper produced by Grayscale Investments in partnership with InvestmentNews Research. Another 12% of advisers personally dabble in the investments but steer clear of deploying them in client portfolios.

The low rate of adoption is not for lack of client interest. Sixty-one percent of advisers have had clients approach them for information about cryptocurrency, and client demand was among the top factors motivating advisers who have already jumped into the space. Rather, the study shows that regulatory uncertainty and lack of access to familiar investment vehicles keep most advisers on the sidelines.

About half of advisers who do not currently use cryptocurrencies with their clients said that a formal barrier — either a firm policy or perceived compliance issue — prevented them. The study found that if these prohibitions on individual advisers disappeared, adoption of cryptocurrency by the industry would roughly double.


Other advisers surveyed by IN Research anticipated they would adopt cryptocurrencies in the near future, regardless of current policy. Within five years, 44% of advisers expect to be working with cryptocurrencies, according to the study.

That adoption could come sooner than later. Last month, Morgan Stanley became the first Wall Street bank to offer its wealthier clients access to Bitcoin. Goldman Sachs quickly followed suit, which could ramp up pressure on other financial institutions. New products and services designed to help advisers work with cryptocurrency continue to come to market.

Meanwhile, the SEC has before it a rash of applications for a cryptocurrency ETF. While their fates are up in the air, the launch of two Bitcoin ETFs in Canada earlier this year and a change of leadership at the U.S. regulator have many observers optimistic about their prospects.

Although the study was conducted before some of these latest developments, the data suggest that they could greatly accelerate adviser adoption.

Of advisers not currently working with cryptocurrency, 83% said they would reconsider if there were more regulatory involvement in the space. Another 77% said greater access to information about the market could change their mind, and 76% said the introduction of an ETF might shift the calculus. A majority also said they would reconsider if greater institutional investment entered the fray.

Whatever the timetable, the study suggests that rising acceptance of cryptocurrency has it on a path to see industry adoption on par with established alternatives like gold and other commodities. That means financial advisers will increasingly need to answer clients’ questions and explain their approach to the asset class, even if they don’t ultimately embrace it.

That backdrop presents an “urgent need for more education and understanding,” Grayscale writes. “When it comes to learning about investment opportunities, while it’s possible to be late to the game, it’s certainly never too early to start.”

For more information on IN’s research offerings, contact INResearch@investmentnews.com.

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