A new report (PDF) from Bitwise and ETF Trends has looked into how financial advisors think about Bitcoin and other cryptocurrencies.
Notably, the report indicates that roughly 9% of independent registered investment advisors (RIA) currently allocate a percentage of client funds to crypto assets. According to the report, the rate of crypto investment among independent RIAs is higher than the rates found with financial planners, wirehouse representatives, and broker dealers due to the relative lack of restrictions independent RIAs face in terms of the types of investments they’re able to make on behalf of their clients.
While overall allocation among financial advisors is still low at around 6%, the report indicates a potential doubling or more for this sort of activity in 2020 based on survey responses.
A variety of reasons for potentially adding Bitcoin exposure to client portfolios are provided in the survey, but the fact that the cryptocurrency is largely uncorrelated with other asset classes is the most highly-cited factor for financial advisors.
Why Bitcoin is Attractive to Financial Advisors
According to the report from Bitwise and ETF Trends, 54% of financial advisors view Bitcoin’s lack of correlation to other asset classes as a reason to add the crypto asset (or one of its competitors) to client portfolios.
“That finding aligns with Bitwise’s qualitative view of how the primary narrative surrounding the investment aspects of crypto evolved in 2019,” the report adds. “From our perspective, 2019 saw a significant uptick amongst both the mainstream media and traditional Wall Street analysts in discussing crypto as a ‘safe haven asset’ and a new form of ‘digital gold.’ That messaging appears to have resonated with the financial advisor community.”
To Bitwise’s point, data from the second half of 2019 appears to show that Bitcoin’s role as a digital gold is going from theory to reality. Additionally, one industry executive pointed to this increasing view of Bitcoin as a digital gold when making a $50,000 Bitcoin price prediction for 2020.
That said, only 9% of financial advisors surveyed in the report view “inflation hedging” as a reason to add crypto assets to a portfolio. The report states that part of the reason for this seemingly low positive response rate could be due to a lack of concern regarding inflation today.
Notably, the percentage of financial advisors who said they would choose commodities as the area from which to pull capital for a potential crypto asset investment doubled from the 2019 version of the same survey, which could be viewed as another indication of growing sentiment around Bitcoin as a digital gold.
In addition to the potential for returns uncorrelated with other assets, 30% of financial advisors said the high potential returns found in the crypto market made exposure to this asset class attractive for client portfolios. Additionally, 26% of financial advisors view client demand as a reason for Bitcoin’s attractiveness, with another 23% enjoying the fact that it’s simply something new to offer their clients.
Potential Problems with Crypto Allocations
Of course, there are still a number of issues with allocating client funds to the crypto market, which is why the vast majority of financial advisors still do not feel comfortable with this proposition.
In terms of specific road blocks in making a crypto asset investment with client funds, financial advisors included in the survey pointed to these issues:
- 56% Regulatory concerns
- 43% Too volatile
- 41% No idea how to value cryptocurrencies
- 39% Lack of easily accessible investment vehicles like ETFs or mutual funds
- 34% Custody concerns / fear of hacks
- 31% Lack of understanding
According to the report, the high degree of concern around regulation could be related to the level of scrutiny Facebook’s Libra project received from regulators and lawmakers after it was announced. Of course, there are key differences with how Libra and Bitcoin work at a fundamental level.
Additionally, the first ‘40 Act-approved Bitcoin fund was recently announced, which has led ETF Trends CEO Tom Lydon to claim there is a 60% chance for the approval of a Bitcoin ETF in 2020.
This story originally appeared on Forbes.
