A growing number of financial advisors are looking to allocate to cryptoassets in client portfolios in 2020, attracted by crypto’s potential to deliver non-correlated returns.
That’s the core finding from the new Bitwise / ETF Trends 2020 Benchmark Survey on Financial Advisor Attitudes Towards Cryptoassets, an annual survey that Bitwise & ETF Trends conducted together in December 2019, collecting responses from more than 400 financial advisors about their latest thoughts on the controversial crypto market.
The survey found that just 6% of financial advisors currently have an allocation to cryptoassets, but an additional 7% plan to allocate by 2020. Another 38% said they were “unsure” if they would allocate or not. Advisors allocating to crypto were overwhelmingly independent RIAs, vs wirehouse reps and independent broker-dealers. When asked why they might consider allocating to crypto, 54% of advisors highlighted the crypto’s “low or uncorrelated returns with other asset classes,” which was the most common motive cited.
“2019 was a breakthrough year for crypto,” said Matt Hougan, Bitwise Managing Director and Global Head of Research. “Crypto was the best-performing asset class in the world last year, with the Bitwise 10 Large Cap Crypto Index rising 54% for the year, while demonstrating value as a hedge against geopolitical risk. Meanwhile, we saw significant evolution in the market for crypto custody and liquidity, with players like Fidelity, CME, and Intercontinental Exchange all launching solutions. Advisors are responding to the rapid maturation of the space, as the survey shows, by increasingly planning to incorporate it into their asset allocation mix.”
Client demand appears to continue to be another major driver of advisor interest, despite it being more than two years since the highly covered run up in 2017. 76% of advisors surveyed said they had received questions from clients about crypto in the past 12 months. In addition, more than one-third of all advisors (35%) said that they believed that some or all of their clients were investing in crypto on their own, outside of their advisory relationship; an additional 37% said their clients might be investing on their own without the advisor’s knowledge.
Regulatory concerns were highlighted as the #1 hang-up preventing advisors from making an allocation to crypto. It’s the second straight year that regulation has topped the list of advisor concerns in the annual Bitwise/ETF Trends Benchmark Survey. That’s not surprising given the high-profile media coverage of regulators’ reaction to Facebook’s crypto project, Libra, last year. Beyond regulation, crypto’s volatility and worries that advisors had “no idea how to value cryptocurrencies” were the other top gating factors.
Not surprisingly, when asked what could make advisors more comfortable allocating to cryptoassets in the future, “better regulation” was highlighted ahead of possibly more intuitive items like “better education” or “the launch of an ETF.” “Better regulation” was highlighted by 58% of advisors surveyed, compared to just 37% who highlighted the lack of an ETF. The lack of an ETF is meaningful, as 65% of advisors listed an ETF as the way they’d prefer to invest in the space.
Despite the concerns, however, advisors are optimistic for bitcoin’s price: 64% of advisors surveyed expect the price of bitcoin to rise over the next five years, and 35% expect the price to double or more. Some advisors, of course, took more extreme positions: 5% of advisors expect the price of bitcoin to 10x in the next five years, while 8% expect it to fall to zero.
“The results of the survey are consistent with the conversations Bitwise has been having with advisors in the field,” said Hougan. “Advisors have a lot of other things to juggle, but crypto is slowly making its way beyond the earliest adopters and being recognized as an important new asset class. As the survey clearly shows, advisors are increasingly interested in considering how its uncorrelated return stream can positively impact client portfolios.”