A survey commissioned by ETF and ETP issuers WisdomTree has revealed that over seven in 10 (72 per cent) of UK advisers have spoken to their clients about investing in cryptocurrencies, with almost half of clients (45 per cent) intending to step outside of their adviser relationship to allocate to the asset class.
The survey, conducted by CoreData Research an independent research agency, polled 600 professional investors across Europe, ranging from wholesale financial advisory firms to wealth managers and family offices. The investors surveyed are responsible for approximately EUR400 billion in assets under management.
The firm writes that while the regulatory landscape may create a challenging environment for UK advisers and their clients, regulation is not currently seen as the biggest barrier to making allocations. Some 35 per cent of UK advisers said the lack of intrinsic value is the most common reason they have not made allocations to cryptocurrencies in a professional capacity. The next two most common barriers for UK advisers are the lack of regulations and lack of trust, both of which 34 per cent of UK advisers pinpointed as big barriers for allocating capital to cryptocurrencies.
Awareness of and investment into digital assets have been growing in recent years, with many professional investors now aware of the role they can play in a portfolio. Nearly half (48 per cent) of UK advisers believe they can be used for diversification as an uncorrelated asset in portfolios. Second to this, 17 per cent of UK advisers believe they can be used a store of value, similar to portfolio allocations into gold. An allocation, to cryptocurrency, of 1-2 per cent was deemed appropriate by a third (34 per cent) of European financial advisers.
Jason Guthrie, Head of Digital Assets, Europe, WisdomTree says: “Cryptocurrencies are a young asset and can be used for different roles in different portfolios. Categorising all assets in the same way ignores the nuances and different use cases of coins, mega cap coins like bitcoin and ether are very different to the wide range of altcoins available on the market. Despite the volatility we have seen this year, demand for digital assets has not dampened and advisers need to be ahead of the curve to ensure clients’ portfolios are managed effectively and the risks around investing in this new asset class are minimised.”
When asked about risk appetite since the onset of the Covid-19 pandemic, almost half (47 per cent) of advisers across Europe stated that their clients are looking for riskier investments, perhaps driven by rising inflation and low interest rates. In the UK, 52 per cent said appetite for risk was unchanged, while 27 per cent noted an increase in demand for riskier investments.
With the cryptocurrency market experiencing significant volatility in 2021, it has become increasingly important for advisers to have access to educational material and research to support clients.
Guthrie concludes: “In the EU we are seeing advisers providing access to cryptocurrency ETPs and keeping clients ‘on their books’, although we’re not quite there yet in the UK. Investing through ETPs allows exposure to the underlying asset without the investor having to manage its public and private keys, meaning clients do not have to worry about keeping coins in digital wallets and will have better access to advice and educational material. If clients are willing to step outside of their adviser relationship, the best thing an adviser can do is get up to speed on the asset class and guide them on their journey into cryptocurrencies, as this will minimise capital risk. Risk management and education should be a priority, especially with such a nascent and fast-moving asset.”