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Portfolio > Alternative Investments > Cryptocurrencies

How Should Advisors View Crypto Assets?

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What You Need to Know

  • Education is key, along with learning whether clients own crypto.
  • If your clients hold crypto, are they self-custodying or outsourcing that responsibility?
  • Increased use of qualified custodians will signal crypto moving more mainstream.

How should advisors approach crypto assets, especially those who, like Michael Kitces, aren’t convinced they are viable assets for client accounts?

Just as they would approach every other asset, says Ben Cruikshank, head of Flourish Crypto, the newly launched turnkey investment solution providing RIAs access to cryptocurrency investing.

Flourish Crypto is part of Flourish, a larger financial products platform for RIAs owned by MassMutual, which last December invested $100 million in Bitcoin, a transaction facilitated by NYDIG, in which it has a minority stake.

Cruikshank, who was part of a panel at this week’s Bitcoin for Advisors conference, said advisors should “take the tone and posture of more traditional financial assets,” including a “real risk management approach,” reviewing compliance requirements and the disclosures and reporting of retail trading platforms on which their clients may be buying cryptocurrencies.

“I don’t think it’s a controversial statement to say that a lot of what you find in the world of crypto has quite a lot of hyperbole and exaggeration and it’s just not the way that advisors have been talking with and educating clients for decades,” he said. “Come back to basics [that are] data-driven [and] research-driven; hedge your language; assess your risk.”

“Education is key” for advisors, said Andy Edstrom, author of “Why Buy Bitcoin: Investing Today in the Money of Tomorrow,” and a financial advisor at WESCAP Group in Glendale, Calif. “There is a lot to learn to understand this asset class.” Edstrom invests only in Bitcoin as part of clients’ small allocations to hard money assets that also include gold.

Steven Sanduski, an author, podcaster and founder of an advisor coaching business, suggested that advisors buy some Bitcoin for their personal accounts as part of their learning process.

“Most advisors are extremely far away from actually allocating to Bitcoin because of the education component,” said Justin Castelli, chief of staff at Onramp Invest, which provides RIAs direct access to crypto assets as well as educational materials.

Are Your Clients Investing in Crypto on Their Own?

While advisors need to get educated about these assets, they also need to learn if their clients are already investing in Bitcoin or any other crypto asset and how they’re holding it — through self-custody or with Coinbase or another platform.

Cruikshank said this is “one of the most important considerations for advisors,” noting that “best practice in the crypto community may wind up being very different from best practice in the advisory community.”

“If you are a firm inclined to have a self-custody perspective … education through and through, understand those things in and out. There are absolutely risks … You need to have a very dedicated approach there.”

He said the “overwhelming” feedback his firm has heard after speaking to hundreds of advisory firms is that firms and their clients want to outsource custody to a qualified custodian and not spend time learning about self-custody.

He expects the custodial arrangement for crypto will, for many, evolve from self-custody to  qualified custodians, much like it did for bearer bonds, once held in bank safety deposit boxes then moving to financial institutions like Charles Schwab. When that happens, crypto assets will become more mainstream, said Cruikshank.


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