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.
Sooner Than Later
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.”
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