The popularity of cryptocurrencies is gaining steam with
large industry players ramping up offerings tailored to institutional
investors, but growing investor demand is expected to soon spill over to
While prices of Bitcoin fell as much as 17% this week — the
biggest drop since March — the slip is minor compared to its broader rally. The
cryptocurrency jumped 50% in December alone, while surging to $34,000, ad
hitting all-time highs on Sunday, according to Bloomberg.
There has been increased institutional adoption of digital
assets, as well, with 36% of institutions surveyed invested in the asset class
and more than six in 10 investors agreeing that digital assets have a place in
portfolios, according to Fidelity research.
In that light, Fidelity Digital Assets announced a new
offering that enables advisers on Fidelity’s institutional-grade digital assets
custody platform to pledge bitcoin as collateral for cash loans. While
Fidelity’s offerings are catered to institutional investors, the expectation is
more advisers will become interested, according to Christine Sandler, head of
sales and marketing at Fidelity Digital Assets.
Fidelity Digital Assets, which launched in 2018, currently
has 100 firm clients including RIAs, family offices, hedge funds and banks,
according to Sandler. The custodian is also working to eliminate some of the
inherent frictions for advisers looking to hold Bitcoin in a portfolio, she
The investor interest in digital assets is not just
institutional, as Silicon Valley-based Blockchange is also looking to bring
cryptocurrencies down to RIAs by rolling out its digital asset management
platform designed for advisers in July.
The cloud-based investing platform gives advisers
discretionary investment management over digital assets including Bitcoin,
Ethereum, Bitcoin Cash and Litecoin, among others, purchased through a
qualified custodian and exchange.
RISKS AND REWARDS
Even with institutional investors interested, advisers are
remaining skeptical of Bitcoin, and other digital assets, for individual
investors as cryptocurrency’s short historical record is too murky to trust in
“I caution my clients against speculating in digital
currencies,” said Matt Morris, an adviser with Sanderling Finance. “A broker
may argue its suitability for a particular client, but I don’t think financial
advisers operating under a fiduciary standard have any grounds to recommend
The problem with digital assets is that the risks and
rewards aren’t quantifiable, according to Morris. There are other alternatives
that have a more robust history and are subject to additional regulation to
promote investor safety. The products also perform based on quantifiable data,
like earnings, dividend payout and book value, Morris said.
The lack of guidance on custody is likely slowing adoption
as lawmakers urge the SEC to clarify how brokers can hold digital securities.
Still, cryptocurrency advocates point out that the digital
currency is a noncorrelated asset class that can serve as a safe store of value
when markets get choppy.
But that argument wasn’t holding water earlier this year
when global markets continued to slide in response to plummeting oil prices and
growing panic about the economic fallout from the coronavirus. While the
S&P 500 and Dow Jones experienced some of their steepest drops in history,
Bitcoin performed even worse.
That type of volatility has stopped Michael Caligiuri,
founder and CEO of Caligiuri Financial from promoting cryptocurrencies to his
clients, for now.
“Advisers need to be extremely clear about the risks of
cryptocurrencies with clients as there could be a relatively high chance that
they could lose everything,” he said. “I believe Bitcoin is more of a
short-term fad than a long-term sustainable asset class.”
For some advisers, the legwork to incorporate digital assets
isn’t worth the return on investment. For example, trading cryptocurrencies
requires multiple account openings, which is tedious for advisers, according to
Thomas Hlohinec, Founder & CEO of Philadelphia-based RIA Rise Financial
Partners. “For a small percentage of a client’s portfolio, it isn’t always
worth it,” he said.
Matt Bacon, an adviser with Carmichael Hill, also agrees
that crypto assets are too volatile and speculative right now to be of much use
to advisers. Long term there could be a place for it, but it’s going to take
time for it to truly solidify its status as a unique asset class, according to
“It could act as a hedge and store of value in a way that’s
similar to gold, but it’s not there yet,” he said. “We don’t recommend crypto
assets to clients but do purchase them upon request.”
Yet, there are advisers that believe digital assets are here
to stay and, like any disruptive technology, it takes time for new innovations
to take hold, according to Lexington, Kentucky-based adviser James Vermillion.
“We don’t see Bitcoin as a fad or trend, in fact, we see an
acceleration of its adoption as both a financial instrument for transactions
and an investment asset class for both institutional and retail investors,”
More education for advisers to understand how digital assets
could benefit a client’s portfolio could also promote more adoption among RIAs,
according to Mike Casey, president and founder of American Executive Advisors.
“Cryptocurrencies should be considered for every investor’s
portfolio,” Casey said. “Advisers who take the time to learn and understand the
implications of blockchain technology and digital assets will be well
positioned to advise their clients.”
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