New trends are too easy for financial advisors to ignore, said Cerulli Reports in a recent white paper, but 13 years after the launch of bitcoin, cryptocurrency is no longer new, and it is no longer a trend.

So are advisors ready now?

Because they not only need to know about crypto, they need to be able to discuss it with clients, Cerulli said in its February paper, entitled “Cryptocurrency: Navigating a Frontier Asset Class for Advisors and Asset Managers.”

The client demand for information and access to crypto is already apparent, Cerulli said, citing Financial Planning Association research showing that 80% of advisors report being asked about using crypto. That same research found that only 14% are actually using or recommending cryptocurrencies.

Cerulli’s own numbers painted a starker picture—82% of the advisors in its recent survey are hearing clients express at least some sort of interest in crypto exposure. (Most of those responses show low to medium interest.)

Though 68% of the advisors in Cerulli’s research believe the demand for cryptocurrency exposures will increase in the future, only 7% of advisors it surveyed said they currently invest in it, and only 16% expect to invest in it in the next two years. Only 31% of advisors said they expect to recommend cryptocurrency for use in client portfolios at any point in the future.

In No Hurry
Cerulli found that advisors have reasons for not rushing in. Many don’t understand or believe in crypto as an investment. Others worry it won’t grow or can’t be properly valued. Still others view crypto investing as gambling because of the lack of traditional fundamentals on which valuations and growth expectations can be based.

Advisors may also be reluctant to trust crypto market participants, Cerulli said.

But there are structural reasons as well, said Cerulli. Many firms don’t offer crypto investment options on their platforms. There is poor understanding about the asset class from a tax and regulatory standpoint, and learning about a new and multifaceted asset class takes time.

Advisors allocate a small portion of their client portfolios to alternatives—which averaged about 10.5% of client portfolios in 2021. That number is anticipated to average 11.8% in 2023, Cerulli research said. Any crypto allocation would be a small sliver of that alternatives sleeve, anticipated as an average of 2.5% of alternative investments within client portfolios in 2023.

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