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Financial Advisors to Remain Skeptical of Crypto Assets in 2022
Seems to be two different types of Investors in Crypto today …
Those who are more like speculators/gamblers who are trading swings in an unregulated environment, and the others are long-term investors who are not as concerned about the swings but are seeking to be a part of shaping the landscape of the future.
Much like how the interest was in the 1990s, Crypto is in its early stages of development, and like before, many are afraid to make transactions.
So how does the Financial Advisory world look at Crypto and Blockchain Technology?
Volatility and regulation uncertainties are keeping most advisors sidelined – Proponents of crypto assets have long argued that cryptocurrencies are a store of value and can effectively hedge against inflation and market volatility. Financial advisors and other opponents of crypto assets will cite any number of bitcoin valuation collapses as well as regulatory uncertainties as reasons to avoid allocating assets into crypto.
In the Bitwise 2022 Benchmark Survey of Financial Advisor Attitudes Toward Crypto Assets, 94% of advisors received questions about crypto assets from clients in 2021 and only 16% of advisors allocated crypto assets into client accounts in 2021.
In the current regulatory environment and with Bitcoin currently down 34% from November 2021 highs, most financial advisors see cryptocurrency assets as speculative and not suitable for most client accounts.
Crypto Survey Highlights
- 84% of financial advisors did not allocate cryptocurrency assets in their client accounts in 2021.
- When financial advisors were asked about 2022 plans for adding cryptocurrency assets to their client accounts:
- 12% Definitely not
- 28% Probably not
- 43% Unsure
- 15% Probably yes
- 2% Definitely yes
- When asked how financial advisors learned about crypto assets in 2021?
- 47% Traditional media
- 46% Crypto companies
- 29% Social media
- 24% Other financial advisors
- 17% Friends and family
- 11% Other
The fact that most financial advisors were being educated about crypto assets from traditional media outlets was shocking. But the survey did offer a reason for vindication, specifically around the growing concerns regarding volatility and the increased desire for regulation in the crypto asset class. When financial advisors were asked what is preventing them from either increasing their investment in crypto assets or making their first allocation in 2022, regulatory concerns were ranked #1 with 60% of respondents, up from 52% in 2021 and 56% in the 2020 survey. Volatility ranked #2 with 53% of respondents, up from only 38% in 2021 and 43% in the 2020 survey.
In Summary …
Survey results read like any other properly constructed investment policy statement: With the bulk of high-net-worth financial advisor clients in their 50s and 60s, they are at a point in their lives when they should be taking on less risk not more speculative risk associated with crypto assets in an environment lacking regulatory oversight. The survey results reflect this unregulated and speculative reality, financial advisors are right to tread lightly when deciding to allocate assets into crypto.
At this point, we do not believe that it is fiduciary today to recommend an allocation of Crypto to all portfolios or investors. However, if clients want to speculate in the Crypto space, we recommend only allocation monies they can afford to lose and for those investors who can exercise great patience.
As with all allocation strategies, it is wise to buy more than one investment. The same goes with Crypto. Do your research and buy 5-10 of the more promising technologies.
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Published March 29, 2022
Joe Maas, CIO | CFA, CFP®, ChFC, CLU®, MSFS, CVA, ABAR, CM&AA, CCIM
David Stryzewski, CEO | CSA, NSSA
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