Time to learn about crypto

It might have sounded like an April Fool’s Day prank when InvestmentNews ran a story on April 1 that Goldman Sachs was interested in offering Bitcoin to its wealthiest clients, but it was no joke. Just a couple of weeks earlier, Morgan Stanley had become the first major U.S. bank to announce plans to give its wealthier clients access to funds that would enable them to own Bitcoin. 

And last week, Bitcoin hit a record of more than $64,000 as Coinbase Global Inc., the largest U.S. cryptocurrency exchange, went public and the global crypto market cap reached $2.24 trillion. Digital assets on Coinbase in the first quarter were worth about $223 billion, including $122 billion worth of assets from institutions, representing 11.3% of the crypto-asset market share, according to the firm’s earnings report. 

Clearly, advisers and Wall Street have reached an inflection point when it comes to cryptocurrencies. 

Bitcoin is fast becoming mainstream, and Coinbase’s direct public offering will be remembered as a seminal moment, Ric Edelman, founder of the RIA Digital Assets Council, told Nicole Casperson recently (page 3). “Advisers who continue to dismiss digital assets will soon start losing clients and assets to those who are embracing them,” Edelman said. 

That’s no surprise. In Wall Street’s remarkable bull run that’s now in its second decade, fear of missing out, or FOMO, has been a factor driving many stocks and sectors higher, not just Bitcoin. There’s been discernible pressure on financial advisers to embrace cryptocurrencies and digital assets as clients express increased interest in how they can participate in the sector’s run-up. 

So just how mainstream has Bitcoin — and by extension digital assets — become? The Securities and Exchange Commission has a new leader in Gary Gensler, who has taught courses on digital currencies at the Massachusetts Institute of Technology, and there’s strong speculation that the SEC will green-light a Bitcoin-based exchange-traded fund under his watch. 

But for now, it’s incumbent upon advisers to tap the brakes on that unbridled enthusiasm and inject some common sense and sound financial strategies to illuminate the many risks unregulated and unproven assets such as cryptocurrencies pose. 

“Cryptocurrencies should be considered for every investor’s portfolio,” said Mike Casey, president and founder of American Executive Advisors. “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.” 

Bitcoin’s current status is equivalent to that of “an awkward teenager,” in that the cryptocurrency is evolving from a retail asset to a true institutional asset, Matt Hougan, chief investment officer at Bitwise Asset Management, said at the InvestmentNews Fintech Virtual Summit in March. 

Like most teenagers, cryptocurrencies such as Bitcoin need supervision and oversight. Is a Bitcoin ETF sanctioned by the SEC a good idea? Yes. It would lend credibility and a sense of security to an investment vehicle more akin to a runaway roller coaster than the calm, easily quantifiable revolutions of a carousel that more traditional investments resemble. 

Advisers must be proactive about crypto. They need to educate themselves to understand how digital assets could benefit a client’s portfolios and, in turn, explain that to their clients.