Betterment is recommending some of its clients to invest in a cryptocurrency originally created as a joke.
The digital advice company, which manages $33.8 billion according to its most recently filed form ADV, announced Wednesday that it will offer four managed portfolios of cryptocurrencies alongside its traditional investment portfolios. Crypto investing will be available on the robo’s retail-facing product as well as on its platform for registered investment advisers, Betterment for Advisors.
One of those portfolios, its “Universe” strategy, allocates 36% of assets to Bitcoin and 16% to Ethereum, the two largest cryptocurrencies on the market. The third-largest allocation, 4.8%, will go toward Bitcoin Cash, followed by 3.8% towards Dogecoin.
“As has been well-documented, Dogecoin was created as a "meme coin" and its long-term fundamentals are questionable at best,” Thomas Leahy, a senior financial analyst at Condor Capital Wealth Management, said in an email.
Betterment will also offer a portfolio focused exclusively on the metaverse and another on decentralized finance. The fourth portfolio will include cryptocurrencies that transact on networks working to improve sustainability. The sustainability portfolio does not include Bitcoin, probably due to the asset's reputation of being energy-intensive, Leahy said.
The crypto portfolios will be expert-built, diversified and paired with educational content on the world of digital assets, according to Betterment CEO Sarah Levy. Retail investors and financial advisers will have access to a resource center, a bi-weekly crypto newsletter and regular commentary from Betterment’s experts.
“Our aim is to be a trusted partner to our customers and empower them to make crypto a part of their long-term investing strategy,” Levy said in a statement.
The robo is putting some guardrails in place. Betterment is recommending customers limit exposure to crypto to no more than 5% of investable assets. This puts meaningful guidance around the high-risk investment to help keep even the most ambitious clients focused on long-term financial plans, said Nikhil Sharma, head of consultancy firm Capco’s digital wealth practice.
“Betterment's approach has been leading with advice versus products,” Sharma said in an email. “It will be interesting to see how they incrementally enhance the crypto offering into their holistic financial planning suite.”
It’s unclear if advisers using the white-label version of Betterment must adhere to the 5% limitation, nor did Betterment specify who are the experts behind building these crypto portfolios. Several prominent figures in the crypto world have seen their projects crash in 2022, such as Alex Mashinsky’s crypto lender Celius filing for bankruptcy in July or Do Kwan’s Terra and Luna “stablecoins” collapsing in May (Kwon is now under investigation in South Korea).
Betterment has not immediately responded to requests for comment.
"All in all, I believe the expertise boasted by Betterment is much less about predicting any given cryptocurrency's relative returns, and more so about finding baskets of securities to meet client demand for a particular exposure," Leahy said. "One risk at least being mitigated by Betterment is liquidity risk by their focusing on the largest and most traded coins."
Betterment acquired Makara, a crypto asset management startup registered with the Securities and Exchange Commission, in February and partnered with crypto exchange Gemini, which is owned by the Winklevoss twins, in September to develop crypto portfolios, according to TechCrunch.
Including the portfolios on Betterment for Advisers also makes the robo one of the few technology platforms to integrate crypto investing in directly a wider suite of wealth management technology. Flourish Crypto and Gemini BITRIA recently integrated with Envestnet Tamarac, but only to flow data to reporting and billing systems.
“Betterment is bridging the gap by competitively positioning advisers to deliver on this demand and provide advice on this volatile asset class,” Sharma said.
Adding the portfolios is a natural evolution for the robo-adviser, which tends to cater to younger investors, said Leahy.
“If robo advisors turned a blind eye to this asset class, younger investors may feel the fear of missing out and therefore be driven to online brokerage platforms that do not have these guidelines in place,” Leahy said in a statement. “For example, the fact that Betterment offers live human advice and digital financial planning tools can help those with crypto in their portfolios keep this volatile investment in the right context, their retirement."
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