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U.S. Advisors Advocate Crypto Investment Amidst Uncertainty: Seizing Opportunities in Volatile Markets?

Last Updated December 1, 2023 2:35 PM
Giuseppe Ciccomascolo
Last Updated December 1, 2023 2:35 PM

Key Takeaways

  • U.S. financial advisors are increasingly recommending crypto investments to their clients. 
  • Crypto prices have dropped significantly in recent months, making them more affordable for investors. 
  • A concern is the lack of regulation in the crypto market.
  • Is this trend continuing in 2024?

Despite the recent downturn in the cryptocurrency market, U.S. financial advisors are increasingly recommending crypto investments to their clients, according to more than a survey.

However, not all advisers know how to invest, manage, and trade crypto. In fact, one survey showed that several advisors have clients who invest in crypto outside of their advisory relationship.

Crypto Investments Grow

Bitwise Asset Management, a crypto index fund manager, and VettaFi, a data-driven ETF platform, have delved into the attitudes of financial advisors towards cryptocurrency assets.

Despite the 2022 market correction, their survey shows strong crypto engagement among financial advisors. Notably, 15% allocate crypto assets to client accounts, and 90% receive client inquiries about the cryptocurrency landscape.

Matt Hougan, Chief Investment Officer for Bitwise Asset Management, highlights the significance of this trend, stating: “The survey underscores that crypto represents a prime business development opportunity within the financial advisor market.”

“With 90% of advisors reporting client inquiries and a majority indicating that clients are investing in crypto outside the advisory relationship, 2023 presents an ideal opportunity to bring these investments under the umbrella of the advisory relationship.”

Todd Rosenbluth, Head of Research for VettaFi, echoes this sentiment, emphasizing the enduring interest in crypto investments among financial advisors and their clients, even in the face of 2022’s market volatility.

“Advisors and their clients remain eager to learn more about crypto investments, despite the volatility experienced in 2022. For those with a long-term investment horizon, interest in crypto remains strong,” he asserted.

One interesting side of the study is that only 29% of advisors reported being able to access crypto in client accounts, with the rest being blocked by company policy. This presents a key opportunity for improved access to this space to enable advisors to better serve their clients.

Advisors Excited About Bitcoin ETFs

Renowned investor and crypto expert Ric Edelman  predicts a massive influx of up to $150 billion  into spot Bitcoin ETFs. He attributes this surge to the untapped potential of financial advisors, who currently underutilize Bitcoin as an investment option.

Edelman, founder of the Digital Assets Council of Financial Professionals and author of “The Truth About Crypto,” attributes the advisor reticence to a lack of accessible and effective Bitcoin investment vehicles.

“We have found that only 12% of financial advisors are currently recommending bitcoin to clients,” Edelman revealed. “The number one reason advisors cite for not engaging in Bitcoin is that there’s no effective, easy way for them to do so.”

To address this gap, Edelman sees spot bitcoin ETFs as the catalyst for unlocking the advisor potential. “And that is why 77% of financial advisors say they are waiting for a bitcoin ETF and that they will engage in it when it becomes available,” Edelman explained.

With independent RIAs, collectively managing $8 trillion in assets, Edelman envisions a scenario where even a small allocation into spot Bitcoin ETFs could generate hundreds of billions of dollars in inflows.

“If independent RIAs put just a small fraction of their investable assets into spot Bitcoin ETFs, that will amount to hundreds of billions of dollars of inflows,” he stated.

More Regulation Expected

All good? Not at all. In fact, the adviser Mona El Isa  raised a question that is relevant and, above all, a hot topic: regulatory pressure on the crypto world.

The cryptocurrency and decentralized finance (DeFi) space has long grappled with the issue of regulatory clarity, as some regulated entities remain apprehensive about the legal classification of crypto assets. However, recent developments suggest that the tide may be turning, potentially ushering in a new era for digital assets.

The ongoing lawsuits initiated by the U.S. Securities and Exchange Commission (SEC) against cryptocurrency exchanges Binance and Coinbase have raised hopes for regulatory clarity. While these legal battles could drag on for months or even years, they represent a critical step toward establishing clear guidelines for crypto assets.

Encouragingly, the recent court case between the SEC and Ripple Labs offered a glimmer of hope in the pursuit of regulatory clarity. In July, Ripple secured a partial victory. A U.S. District Court ruled that the sale of Ripple’s XRP token on exchanges and through algorithms did not constitute investment contracts.

This favorable ruling was further bolstered by a major victory for crypto asset manager Grayscale Investments. In a recent decision, the U.S. Court of Appeals granted Grayscale’s petition to convert its over-the-counter Grayscale Bitcoin Trust (GBTC) into a listed Bitcoin ETF.

These encouraging developments have seemingly sparked renewed interest and engagement from the traditional finance world. Established players such as BlackRock, Fidelity, Schwab, and Citadel have also announced plans to launch crypto-related ETFs.

Need More Clarity To Win Traditional Finance Attention

However, for traditional finance to fully embrace digital assets, clear and well-defined regulations are essential. Recognizing this need, at least 50 digital asset bills have been introduced to the U.S. Congress since 2022, aiming to regulate various aspects of the crypto space, including stablecoins and the jurisdictions of U.S. regulators.

Among these bills, four stand out as potentially having a significant impact on the industry if passed into law.

The Digital Assets Market Safety and Accountability Act (DAMS) bill, introduced in June 2023, seeks to define the regulatory roles of the SEC and the Commodity Futures Trading Commission (CFTC) in the crypto space. Additionally, it proposes a framework for determining whether cryptocurrencies should be classified as securities or commodities.

The DAMS bill further mandates that crypto tokens undergo certification with the SEC to demonstrate adequate decentralization before being granted commodity status. This provision aims to address concerns surrounding the potential for centralized control over certain cryptocurrencies.

These regulatory developments, coupled with increasing interest from traditional finance institutions, suggest that the future of digital assets is poised for significant growth and adoption. As clarity and regulatory frameworks evolve, the potential of digital assets to revolutionize the financial landscape will continue to unfold.

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