Bitcoin bears: Financial advisers still cautious of crypto

Hype from retail and institutional investors on digital assets isn’t enough to sway skeptical advisers who are weighing the risk and reward of crypto before adding the asset class to clients' portfolios.

The meteoric rise of Bitcoin this year has shaken the wealth management industry as more retail and institutional investors crave being one of the cool kids investing in digital assets.

The world’s largest cryptocurrency is undoubtedly the most hyped asset on the block, with prices ascending to a record high of $64,000 as the direct public offering of the country’s biggest crypto exchange, Coinbase Global Inc., fueled mainstream interest.

Plus, major players are going all in on digital assets. 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 — from passive funds to separately managed account options — continue to come to market.

Organizations such as the RIA Digital Assets Council have sprung up, too, in an effort to give advisers the knowledge and skills they need to provide their clients with accurate, relevant, timely and valuable advice about blockchain and digital assets. 

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With all this industry support to get advisers involved and educated with cryptocurrencies, they must be ready to sit at the cool kids’ table, right?

Not quite.

Only 10% of financial advisers currently recommend cryptocurrency holdings to at least some clients, according to a recent white paper by InvestmentNews Research in partnership with Grayscale Investments. 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, crypto’s lack of history as a true currency, an uncertain regulatory environment, and concerns about safe custody and fraud are all potential issues with Bitcoin and other digital currencies still keeping advisers on the sidelines.

“Am I interested in using it? Simple answer: Nope. It’s the ‘Seinfeld’ show of investments: a currency about nothing,” said George Gagliardi, a financial adviser with Coromandel Wealth Management. “There’s nothing there except a number and artificial demand for something that doesn’t really exist. Demand, and the price, could evaporate tomorrow.”

Cryptocurrencies have too many unknowns and risks to call them an investment, he said. Today they are a speculation.

“Do you need a ‘crisis hedge?’ Stick with gold. It has acted as a currency for over 6,000 years, is scarce, and you can hold it in your hand,” Gagliardi wrote in an article more than three years ago.

His sentiment hasn’t changed since.


Financial advisers are still facing pressure to embrace cryptocurrencies and digital assets as clients express increased interest in participating. Yet the most extreme crypto bears would rather lose a client’s business than lose all their assets to Bitcoin.

David Creekmore, principal and president at Lifetime Financial, said he advises his middle-class clients strongly against crypto because “smart investors don’t speculate.” If investors are too bullish on digital assets, he might even let them go as clients, he said.

“Bitcoin has not been around long enough as an asset class to know its expected returns, dispersion of returns and correlation to other assets,” Creekmore said. “As a fiduciary adviser, I am not upholding my promise to clients if I invest their portfolio in a speculative asset.”

Denver-based adviser Trent Porter said the speculative nature of crypto is the reason his firm, Priority Financial Partners, isn’t investing clients’ assets in cryptocurrency.

“Invest in a stock and you get the dividend,” Porter said. “Invest in real estate and you get the rent. The only thing you’re buying with Bitcoin is the hope that someone else will pay more for that same hope than you did.”

To be fair, there are a number of tech providers rolling out tools to help advisers manage the uncertainty of digital assets. For example, Blockchange introduced a separately managed account option allowing advisers to outsource the management of their clients’ digital portfolios by using a framework to account for protocol maturation, ecosystem adoption rate and project governance.

Makara, a Seattle-based advisory firm that’s registered with the Securities and Exchange Commission, is gearing up to offer automated services allowing users to invest in crypto through passive exposure to digital assets via seven “thematic baskets,” said Makara co-founder Jesse Proudman.


These tools are still not convincing advisers who believe that Bitcoin is a part of a wave of speculation that has taken over as the pandemic increased consumer interest in investing, said Michael Caligiuri, founder and CEO of Columbus, Ohio-based Caligiuri Financial.

“I don’t think it’s merely a coincidence that phenomena like GameStop, AMC, Tesla, Bitcoin, Dogecoin — which was created as a joke — the SPAC boom and NFTs are all happening at more or less the same time,” Caligiuri said. “Personally, I believe it’s undeniable that we are in a speculative mania of sorts where people are justifying prices at almost any level.”

That attitude is not entirely unprecedented.

Cryptocurrency advocate Ric Edelman, co-founder of Edelman Financial Engines, said one of the biggest benefits of adding Bitcoin to clients’ portfolios is its low correlation with other assets, so advisers can use it as a safe store of value when markets get choppy.

That argument wasn’t holding water, however, in early 2020 when stocks plummeted in March and April due to the pandemic. The correlation between Bitcoin and the S&P 500 was almost one — meaning that the returns of both assets moved in the exact same direction.

Bitcoin’s slump on Sunday, April 18, 2021 — when the cryptocurrency fell by as much as 15% — was an event that sparked some advisers to warn clients of crypto’s risks.

“There is the saying that a bad day in the stock market is a bad year in the bond market,” said Terri Spath, founder and chief investment officer of Zuma Wealth. “I say that a bad day in the crypto market is a bad year in the stock market.”

Plummeting prices are the biggest risk for any of these cryptocurrencies, Spath said. “Crypto prices can go up fast in a day or even an hour,” she said. “They can also crash down on your head fast.”

In that light, Spath cautions clients against throwing too much of their wealth into any cryptocurrency. “However, the white-hot gains may be worth it for some ‘shoot the moon’ money,” she said.


Some advisers are convinced that cryptocurrency has reached a critical mass that means it’s here to stay. But the lack of major custody solutions is another Bitcoin barrier for advisers. Coinbase and Fidelity Investments have taken the lead in offering cryptocurrency custody services.

Matt Bacon, an adviser with Carmichael Hill & Associates, said his firm has a handful of clients who invest in the Grayscale Bitcoin Trust, which tapped Coinbase Custody Trust as its custodian, but that’s about it.

Leo Marte, an adviser with Abundant Advisors, shared a similar sentiment, saying that crypto is safe or unsafe to the extent that someone trades and custodies with a reputable institution where the money won’t vanish. Still, that might not be enough to sway him.

“Make no mistake, there is nothing safe about something that has no intrinsic value even if stored in the most physically safe way,” Marte said.

With advisers lacking confidence in crypto custody services, fraudulent activity related to crypto is also a top concern. Investors have lost more than $16 billion to crypto scams since 2012, according to research by crypto disclosure and transparency platform Xangle.

“Most crypto scams can appear as emails trying to blackmail someone, online chain referral schemes, or bogus investment and business opportunities,” Cristina Miranda, consumer education specialist at the Federal Trade Commission, wrote in a July 2020 report.

The first big scam to rock the world of crypto was the Bitcoin Savings and Trust Ponzi scheme, which started in 2012 and eventually defrauded investors out of 146,000 Bitcoin — roughly $97 million at the time the Securities and Exchange Commission filed the initial charges in 2013.

“I’m absolutely worried about custody and fraud risk,” said Noah Damsky, principal at Marina Wealth Advisors. “One way to get around the risk of fraud is to get exposure to Bitcoin without actually owning Bitcoin; this can be done in the futures or derivatives market.”

However, retail investors aren’t likely to use futures, so for them, the risk of fraud is very real because of the way they hold crypto, Damsky said. “These are binary risks that can cause crypto to fall dramatically. I think it’s best for everyday investors to wait on the sidelines until it’s less speculative.”


Arguably, the underlying technology of cryptocurrencies — the blockchain — should make digital assets safer for investors, given that the digital ledger is immutable. Bitcoin advocates say Bitcoin and blockchain should be looked on as technologies that are worth investing in depending on a client’s profile, rather than as a fluctuating asset based on price.

Crypto skeptic Ben Lies, president and chief investment officer for Delphi Advisers, is a huge advocate for blockchain. In fact, Lies is of the belief that decentralized finance — a blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges or banks — is the future.

“Blockchain is an amazing technology that will, eventually, replace all financial intermediaries and make things way more efficient,” Lies said. “The problem is there is no real way to invest in this technology to my knowledge, because buying the ‘coins’ or ‘tokens’ is not investing directly into the technology and there aren’t any blockchain companies to invest in.”


“People who don’t like Bitcoin say this is a fad, just like tulips. I disagree,” said Abundant Advisors’ Marte. “I think cryptocurrencies will be part of the future, so we need to study them and make rational decisions about integrating them into a portfolio for clients for whom it is suitable.”

Bear or bull, the bottom line is that advisers must be proactive about crypto, Marte said. They need to educate themselves to understand how digital assets could benefit, or endanger, a client’s portfolio and in turn explain that risk-reward to their clients.

Education is the first step, especially given that Bitcoin and the blockchain are still in their early stages in terms of use cases and adoption, Kianga Daverington, managing partner and chief investment officer at Acre of America Partners, said during the InvestmentNews Fintech Virtual Summit March 23.

“There’s a long runway here,” she said. “The time that it takes to start to understand this asset is considerable.”

Tyrone Ross, CEO at Onramp Invest, encourages advisers to “gather round the campfire” to come together and understand that, yes, Bitcoin is volatile. What that means is it’s up to advisers to profile their clients and put risk tolerance at the beginning of the conversation when clients ask about Bitcoin or Dogecoin, he said at the InvestmentNews summit.

Moreover, if a 1% allocation is all an adviser is comfortable with, it might be better to go back to learning first, Ross said. “If you are not comfortable moving in some meaningful size, the best investment you can make right now is your education on the asset.”

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