The world has gone crypto-crazy. From the dramatic 180-degree turn taken by bitcoin prices over the past 18 months; to the record rise of Ethereum; to million-dollar digital art; to the emergence of millionaires minted on Dogecoin, a digital token created as a joke spoofing the emergence of other cryptocurrencies—retail investors have zealously plunged into digital assets.

Financial advisors, on the other hand, have been slower to react. Only 9.4% of advisors allocate to digital assets within their client portfolios, according to the “Bitwise/ETF Trends 2021 Benchmark Survey of Financial Advisor Attitudes Toward Cryptoassets.” That leaves crypto-curious clients on their own to claim a stake in the latest digital gold rush.

The No. 1 reason advisors don’t allocate client assets to cryptocurrencies, according to Bitwise, is regulation, something over half of them said in the survey. But their other concerns include volatility, a lack of investing vehicles, a lack of understanding of digital assets and no clear understanding of how to value those assets. The advisors in the survey called for better regulation, more education, a bitcoin ETF and better custodial solutions.

“The reality on regulation and digital assets is that advisors can pretty much do whatever they want, they just have to do it right,” says Tyrone Ross, founder of Onramp Invest, an investment platform for young advisors. “There are even good custody options. They’re expensive, but it’s not an excuse any longer.”

Ross, an early adopter of digital assets, has not only urged advisors to educate themselves on cryptocurrencies, but also advocates for them both as alternative banking tools and investments.

For the average investor, cryptocurrency investment has become quite simple. Payment applications like Venmo and PayPal now offer access to crypto, as do many investment platforms, including the ever-popular, commission-free trading application Robinhood.

But for advisors, there are only a handful of places to custody clients’ digital assets since the major custodians—Schwab, BNY Mellon | Pershing and Fidelity—don’t offer ways for advisors to work with digital assets, either directly or through the various available non-registered cryptocurrency funds.

“RIAs don’t know how to access this asset class on behalf of their clients,” says Eric Satz, founder and CEO of Alto IRA. “I suspect many of them are getting client calls about how to get exposure to crypto, and for most of them the answer is still ‘I don’t know.’”

Alto IRA offers advisors three ways to help their clients access crypto: via private funds like the Grayscale Bitcoin Trust, via separately managed accounts and by allowing their clients to access and self-manage digital assets directly, Satz says. Alto is also in the process of building advisor technology and integrating with existing technology providers to help advisors handle cryptocurrencies alongside clients’ traditional assets.

BlockFI is also developing technological solutions to help advisors work with digital assets, but notes that custody is still a problem for advisors.

“There is not yet a platform that has a solution where an advisor can open an account and trade cryptocurrencies on behalf of their clients,” says David Olsson, BlockFI’s vice president and global head of institutional distribution.

“I think previously this wasn’t one of those things considered to be part of the asset allocation framework that advisors use, but now that institutional adoption of cryptos has ramped up, we’re seeing requests every day for advisors looking to on-board and do things on behalf of their clients.”

Another crypto-friendly custodian, Prime Trust, recently struck a deal with AdvisorPeak, a portfolio trading and rebalancing fintech firm, to offer a simple custody and technology solution for advisors. This creates the first platform on the market that enables digital assets to be traded and rebalanced alongside traditional assets using the same software.

“We’ve talked about this for years, but until around 12 months ago we didn’t really see demand from advisors,” says Damon Deru, AdvisorPeak’s founder and CEO. “Now, with the run-up in digital asset prices, advisors are seeing people come in with cryptocurrencies taking up a sizable portion of their portfolio that they need to do something with—but the custody issue continues to be a problem.”

But these solutions aren’t what advisors are really looking for, says Teddy Fusaro, president of Bitwise Asset Management. He points out that most advisors are only looking to allocate a small portion of existing client portfolios to digital assets.

Most advisors’ demand for digital currencies stems from their desire to diversify portfolios, since the currencies are relatively uncorrelated to other assets. But they balk at the thought of adding a new custodial relationship to manage 1% to 2% of their AUM.

“Advisors don’t want to have to manage new relationships and build out a whole new technology stack to get brand new exposure to a commodity or asset class,” says Fusaro. “We think they’d rather use a vehicle—like an ETF—that from a compliance and technology perspective already fits their existing business model effectively.”

While firms like Fidelity and BNY Mellon have made strides toward working with cryptocurrencies, most of their offerings are not available to advisors investing on behalf of their clients, says Deru.

First « 1 2 » Next