Financial advisors are reluctant to include cryptocurrencies into their portfolios. They won't be able to ignore the alternative asset for long.
45% of advisors say they will use cryptocurrencies in the future to respond to client requests, according to a study.
Only 7% of advisors say they are currently using these assets based on their own recommendations, and 10% are using it because of client requests.
80% of advisors say clients of all ages have asked them about cryptocurrencies, according to Cerulli.
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A June 2021 survey from the Financial Planning Association and the Journal of Financial Planning found that about 49% of advisors said clients had asked about cryptocurrencies in the preceding six months.
The surge in value cryptocurrencies saw increased investor interest.
Their market value fell to $2 trillion this year after climbing to $3 trillion in 2011.
The free float market cap is the amount of cryptocurrencies available for trading in the market. Much of that is made up of two things: bitcoin and ethereum.
If advisors don't include it or have a stance on it, they could potentially lose clients over it.
Financial advisors are more bullish on other assets.
Private equity made up 20.9% of advisors alternative asset distributions in 2021, followed by debt, natural resources, infrastructure and real estate. Non-traded real estate investment trusts made up 18.6% of the total.
Cryptocurrencies made up 2.3% of alternative distributions.
Advisors expect to boost alternatives exposure to infrastructure with an anticipated 2.5% increase from their current allocation, as well as other areas like hedge funds and venture capital, with a 1.3% increase expected for each.
The increase in exposure is expected to be small.
There are reasons why financial advisors don't increase how much they spend on cryptocurrencies.
Some may shy away from it because they don't have the time to understand the market, while others may worry that they could violate their fiduciary duty. Cryptocurrencies may not be included as investment options on their platforms.
There is no regulation of these assets. It may take a few years for the approval of a spot bitcoin exchange-traded fund.
Because of their size and management structure, independent registered investment advisors may be able to integrate these assets first.
Large financial firms are adding to their expertise in this area.
Individual investors may be able to access cryptocurrencies outside of their advisor relationship through platforms.
It is up to advisors to make sure they have a full picture of their clients' exposure to cryptocurrencies, even if they don't have control of those assets.
They can make sure that they know what their clients have in outside assets.
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