Why advisors are finding it harder to ignore clients' crypto curiosity

Not too long ago, advisors might have been able to dodge conversations about cryptocurrencies by pointing to the volatility in returns, headline-grabbing implosions of crypto exchanges, and other risks. But in the face of growing pressure from clients and adoption by large financial institutions, more future-focused wealth firms are turning a corner on digital assets.

“If you look at where the market is today, clients are asking for more than their standard investments, and they keep hearing about crypto and these crazy returns that people are making,” said Hashim Mitha, CEO and co-founder and MeetAmi Innovations Inc. “We are at a tipping point where advisors need to obtain an understanding about digital assets now in order to meet this unprecedented client demand.”

MeetAmi Innovations Inc. (“MeetAmi”) is a Vancouver-based technology company that helps wealth management firms navigate the world of digital assets on behalf of their clients. Recently, the company closed a $36-million seed investment round from Private International Consulting (PIC), an independently operated multi-family-owned European investment office, which it aims to use to expand its platform and develop more features to help advisors transact and manage digital asset portfolios.

Aside from showing the fastest pace of adoption in the history of technology, Mitha says cryptocurrencies have been the best-performing asset class in the last 10 years. Evolution in the space is also proceeding at an overwhelming pace, with new coins being created monthly.

“The future of this actually isn't just about cryptocurrencies,” he adds. “It's about the world of tokenization, whether that's tokenized real estate, tokenized private equity, or NFTS.”

The popular line is that crypto is for the cool kids; as digital natives, millennials and the older members of Gen Z are more willing to ride the new wave of tech-enabled investments, with some becoming overnight millionaires. But more mainstream cryptocurrencies like Bitcoin are also catching the attention of high-net-worth individuals who are looking for assets to help diversify their portfolios.

At the moment, the vast majority of advisors are unable to accommodate blockchain-based assets in the portfolios they manage, unless they’re investing through a spot crypto ETF. That’s not good enough for many clients, who are deciding to invest in crypto on their own – and taking away AUM from their advisors in the process.

“You’ve got 30- and 40-year-olds attending dinner parties where people are talking about how much money they made off of buying ether at $200 and selling at $4000. And they're asking ‘Why am I not in that?’ So they go and ask their advisor,” Mitha says. “And right now, advisors don't have an answer.”

As concerns about inflation mount across the world, advisors are looking for ways to hedge their clients’ portfolios for the long term. Allocating up to 5% gold has been the traditional go-to solution in high-inflation scenarios, but a growing contingent of investment professionals want to split that 5% between gold and bitcoin. As curiosity and awareness of cryptocurrencies grows, there’s also an expanding diversity of uses being explored for cryptocurrencies as part of an overall portfolio design.

“The conversations we have with advisors start with Bitcoin, and literally by the end it includes Ether. Then about two days later, it expands to cover more coins by market cap,” Mitha says. “About a month after that, they’re asking ‘How do I get access to earning and staking products and other investments?’ So bitcoin effectively becomes a gateway into the whole world of Defi.”

It’s only been four months into 2022, but he says there’s been a quantum shift in demand for digital asset exposure in portfolios. For advisors and wealth firms, that creates additional pressure to map out a digital asset strategy. Over the next 12 months, Mitha predicts the space will only continue to accelerate, and the number of crypto players registered with IIROC and the CSA will explode.

“We fundamentally believe that the time to start learning is now. It's time to get on this journey,” he says. “It doesn't mean that you have to invest today, but I think it is absolutely imperative that advisors are familiar with the industry and how it works so that they can address changing client demands.”