With bitcoin probing multi-year lows and the bottom having fallen out of the non-fungible token market, among other factors, these are dour days for clients that sought exposure to digital assets in discretionary accounts.
Those that thought equities were a better or less volatile avenue for accessing crypto may eventually be vindicated, but for now, those stocks are slumping due to erosion in growth equities and some stock-specific issues management teams could have avoided, but did not.
Add to all that, the Securities and Exchange Commission (SEC) hasn’t approved a physically backed bitcoin exchange traded fund and with the largest digital currency slumping, the prospects of that happening over the near- to medium-term are basically zilch.
Bottom line: It’s a good time for advisors to engage with crypto-scorned clients and data indicate, unfortunately, there are plenty out there.
Crypto Survey Depressing, Revealing
Owing in large part to bitcoin’s unraveling this year, many investors that purchased cryptocurrencies are down on those investments. Unfortunately, the percentage is alarmingly high as a recent Pew Research poll confirms.
“The turmoil in cryptocurrency markets has taken a toll on investments. Among the 16% of U.S. adults who say they have ever invested in, traded or used a cryptocurrency such as bitcoin or ether, 46% report their investments have done worse than they expected,” according to Pew.
The survey was conducted in July, but it doesn’t say how many of those among the 46% purchased crypto earlier this year and are still holding. It’s likely the percentage of that group that are in the red is far higher than 46%. Another data point confirms what many advisors know and what many clients should know: It’s hard to make money on crypto investments.
“By comparison, 15% of these Americans say their investments have done better than they expected, 31% say they have worked out about the same as they expected and another 8% say they are not sure,” adds Pew.
This year’s struggles cannot be ignored, but the reality is digital assets aren’t going anywhere. The phenomenon will continue growing and it’s on advisors to properly acknowledge and capitalize on that trend. Much of that effort includes understanding investors’ motivations for embracing crypto and demographic trends, including that, for now at least, men are more likely to allocate to this asset class than women.
Speaking of Motivations...
Advisors should not overlook the value in understanding why some clients gravitate to digital assets.
“Among the 16% of Americans who say they have ever invested in, traded or used a cryptocurrency, about three-quarters say that a major or minor reason is that they want a different way to invest (78%) or that it is a good way to make money (75%),” notes Pew. “Some 54% say at least a minor reason is that they think crypto is easier to get into than other ways to invest.”
Point is advisors should not spend time trying to talk clients out of crypto. The risks in that strategy outweigh the rewards. The proper course of action likely is articulating to clients that crypto is a volatile, still young asset class and as such, it should likely command small percentages of even of the most aggressive clients’ portfolios.
Related: Robertson Stephens Lifting Operational Burdens for Advisors