At 74, Cumberland Advisors’ David Kotok has guided wealthy clients through a long career’s worth of bubbles and crashes. Now he’s being inundated with questions about the latest soaring asset to confound investors -- bitcoin.
“Clients bring up bitcoin all the time,” said Kotok. “They think it’s cool. It has the newness, which is attractive to some people, though others would say newness is a risk they don’t want to take.”
Wealth managers across the U.S. are fielding calls and emails from clients worried they’re missing out on something big by not owning bitcoin. While most advisors don’t recommend buying such a volatile asset with no intrinsic value, they do have tips for clients who have taken the plunge, or are dead set on doing so.
The cryptocurrency has been whipsawing Wall Street: UBS Group AG, the world’s largest wealth manager, is shunning bitcoin allocations because of a lack of government oversight, while Michael Novogratz is starting a $500 million hedge fund to wager on digital assets. As bitcoin mania moves to Main Street, thanks to its spectacular rise from about $750 to $8,200 in a year, five advisors offer some suggestions.
Kotok, whose Sarasota, Florida-based firm manages about $3 billion for high net-worth clients, warns them off bitcoin, calling it a classic momentum trade. But for investors who own it and brag about the gains, he advises them to take their original investment off the table. Better to gamble with house money.
Skin in Game
To Kevin Grimes, president of Westborough, Massachusetts-based Grimes & Co., the best way to learn about the market is to have some skin in the game. So he bought a couple bitcoin on Coinbase Inc. earlier this year.
"Laughing off bitcoin could wind up being a big mistake,” Grimes, 42, said. Yet at this point he sees buying bitcoin as a Vegas-style gamble. Clients who buy it should do so with money they don’t mind losing. "Bitcoin could go to zero and be a scam, and it could go up to numbers no one has conceived of yet," he said.
Alternative Investment
Sam Boyd, senior vice president at Capital Asset Management Group, takes a more tactical view. While Boyd doesn’t recommend buying bitcoin, he said it could work as a non-correlated alternative asset in a portfolio much like real estate investment trusts or hedge funds. But keep the stake small.