TD Ameritrade and Ric Edelman are the latest to hitch their big brand names to the cryptocurrency bandwagon.
TD announced Wednesday that it had made an investment in ErisX, a fully regulated derivatives exchange and clearing firm that plans to include cryptocurrencies and digital asset futures on a single platform.
JB Mackenzie, head of futures and forex at TD, said the move is driven by demand from self-directed retail investors for more investing opportunities in cryptocurrencies, even after the market capitalization for digital currencies dropped sharply this year and regulators increased their scrutiny.
ErisX’s compliance with existing regulations for spot and futures trading is what made it an attractive opportunity compared to other cryptocurrency exchanges on the market, Mr. Mackenzie said. As TD works with ErisX to develop and launch digital currency investment products, Mr. Mackenzie said it was important to provide “the same experience they get with the existing futures and equities markets, where there are those protections.”
Products in the pipeline have the retail space in mind, but Mr. Mackenzie said there may be something that moves over to the adviser space as cryptocurrencies evolve.
Mr. Edelman isn’t waiting for an institution to bring cryptocurrencies to advisers. The founder and executive chairman of Edelman Financial Services, an RIA with $22 billion in assets under management (not counting its merger with Financial Engines), has invested in Bitwise Asset Management, a firm creating cryptocurrency index funds.
Mr. Edelman will serve as an adviser to help Bitwise “bring institutional-caliber crypto exposure to investors in the U.S. and around the globe,” according to a statement. He joins a list of investors that includes former Barclays Global Investors’ CFO Alison Davis and former Wealthfront CEO Adam Nash.
When asked why he invested in Bitwise out of all the companies cropping up to capitalize on the crypto-boom, Mr. Edelman told InvestmentNews he was impressed with the experience and knowledge of Bitwise’s executives.
Mr. Edelman added that he was impressed by the company’s diversified approach to investing in cryptocurrencies. In November 2017, Bitwise launched the Bitwise 10 Private Index Fund, which holds the 10 largest cryptocurrencies by market cap. The fund is available to accredited investors with a minimum investment of $25,000 and charges a 2.5% management fee.
“It’s an effective way to speculate in this space,” he said. “And speculate is the key word. It’s still the Wild West.”
As such, advisers with Edelman Financial aren’t yet recommending crypto-ETFs in managed portfolios. However, Mr. Edelman believes products like Bitwise and ErisX are paving the way for digital assets to become a legitimate asset class. And he’s confident the SEC will soon approve cryptocurrency ETFs as ’40 Act funds.
“What we are recommending and strongly advising is that our clients and all investors dramatically increase their knowledge of this space,” Mr. Edelman said. The future is cashless, he added, and the market of digital assets is simply too big to ignore.
“Even more than that, the smart contract technology embedded in cryptoassets like ethereum has the potential to revolutionize huge portions of the financial industry,” he said. “Financial advisers need to work right now to future-proof their portfolio against the technological changes taking place in the world today.”