There are some basic truths about the cryptocurrency space that, despite it's young age relative to other asset classes, advisors are already in tune with.
For example, bitcoin is by far the largest digital asset and the primary driver of headlines and investor interest in this space. That said, there are nearly 6,900 digital coins on the market today and that population continues expanding. Advisors also know this arena is chock full of speculative investments, such as joke coins based on other joke coins. There's even a coin based on the Netflix show “Squid Game.” All that coin did was jump 40,000% last week.
Add it all up and advisors know clients are increasingly interested in cryptocurrency. What's important, however, is analyzing what segments of a client base are displaying the most interest in crypto and what their motivations are for that view. A recent study by Morningstar sheds some light on what type of client is crypto-enthused and what's motivating them to feel that way.
“After controlling for other factors, the study also found that those with a shorter time horizon are more interested in crypto. In other words, the longer people tend to plan ahead, the less interested they are in cryptocurrency investment,” according to Morningstar.
The Morningstar study polled nearly 1,100 respondents, asking each of they owned one or more of a dozen assets, including crypto, stocks, bonds, mutual funds, exchange traded funds and others. Income levels in the survey were broken out into seven groups with the bottom being less than $25,000 per year and the top being over $150,000.
Interestingly, age wasn't a major factor in decisions or motivations to embrace crypto and that's something for advisors to note because, well, it's probably not wise for retired 75-year old clients to be loaded up heavily on bitcoin.
“The sample overall reported more interest in purchasing stocks than in purchasing crypto Age was unassociated with the ownership and likelihood of buying stocks but was negatively associated with the ownership and intention of buying crypto,” adds Morningstar. “Higher earnings were associated positively with intentions to buy both stocks and crypto. Interestingly, investor identity played a larger role on intentions to purchase stocks than on intentions to purchase crypto. A long-term time horizon was associated with ownership of stocks and safer assets, as well as intentions to purchase stocks (but not crypto).”
As the chart below indicates, those that consider themselves investors still lean toward traditional asset classes and those that either fancy themselves active traders or those about to start investing (non-investors) feel the same, though by a lower margin. For advisors, the takeaway from the chart ought to be that the crypto percentages across both groups are high.
Expect those figures to increase and perhaps rapidly as investors become more crypto-savvy and access to related products increases.
Some salient points emerge from the Morningstar study. First, it's clear many clients are apt to lean toward basic asset classes. Second, there's no denying there's crypto momentum. If there wasn't, the study wouldn't be relevant nor would it have been performed (I think).
“Your clients may very well be interested in crypto. Crypto is still a relatively new type of asset, and although it is not nearly as popular as are more traditional investments such as stocks, investors appear to be paying attention. Intention to purchase crypto was present (for some more than for others, as the results of this research show), although not as strong as intentions to purchase stocks,” notes Morningstar.
Other points for advisors to consider in crypto conversations, as noted above, include how long- or short-term minded the client is and whether he or she views themselves as an investor.
Something else worth pointing out, and it's not something brought up in the Morningstar study (that's not good or bad, just sayin') is that clients have more ways than ever to indirectly access crypto, including with stocks and equity-based ETFs. It'd be interesting to see a study done where respondents are given the choice of direct crypto exposure, none at all or using stocks to get there.