Why it may be time for advisors to shed their crypto skittishness

With signs of more supportive regulations and news of a less adversarial SEC, the case for crypto is slowly but surely getting stronger – and it may be just a matter of time before advisors catch on.

To be sure, advisors have been understandably hesitant to jump on the digital asset train. But according to Tyrone Ross, CEO of 401 Financial and Turnqey Labs, a platform built to pull together data from disparate corners of the cryptocurrency ecosystem, recent changes at the Securities and Exchange Commission are opening a path for a change in attitudes.

"The skies have cleared, and I think everyone is realizing that," Ross told InvestmentNews in a recent interview.

From enforcement to guidance

At 401 Financial, his RIA, Ross says legal counsel is indicating the firm "can start to do a little bit more than we had done previously" on crypto assets. He's also encouraged by SEC Commissioner Hester Peirce's leadership at the crypto task force, noting it could resolve the crypto custody issues that have been a roadblock for advisors.

"I've been saying for years that if the CFTC and the SEC gave joint guidance, financial advisors would love that," he says, suggesting that the SEC could take oversight of crypto exchanges while the CFTC brightens the dividing lines to define when tokens count as commodities, as well as the roles and responsibilities of custodians. 

"If bitcoin ends up being a commodity, advisors may have to look at the CTA [commodity trading advisor] registration," he says.

Mike Alfred, whose hedge fund Alpine Fox invests in bitcoin and bitcoin-linked equities, among other asset classes, also sees signs of a more pro-crypto SEC. Recent news of the agency dropping its lawsuit against Coinbase, one of several litigation actions under former SEC Chair Gary Gensler, is likewise a positive signal.

"It seems like the posture of the regulatory apparatus is, at the very least, going to be more neutral. And that's what I think the industry needs," Alfred says.

While it's still early to tell, he predicts a sunnier regulatory climate for crypto over the next four years compared to the last four. But looking at recent market movements, he says the early post-election euphoria around cryptocurrencies has largely faded.

"Securities that are tied to the crypto market turned over very hard in mid-December, the day of the Fed meeting," he says. "We did get the Trump bump right after the election, but it only lasted five or six weeks, and then people sold into it."

Following the election, Ross saw a runup in crypto markets, including a frenzy around meme coins. In the days leading up to his inauguration, President Donald Trump launched his own crypto token, which both Ross and Alfred took as a strong vote of confidence.

"If the president is launching a coin, then it's open season," Ross says. "We've definitely seen animal spirits since he got into office. But now the [crypto] ETF flows are slowing down." 

The past few weeks have seen a fall for bitcoin, which has plunged from its $100,000-plus apex in December to less than $90,000 on February 25. Alfred predicts it could bottom out in the $70,000 range, but then move significantly up later in 2025.

Crypto: the new ETFs for advisors?

Despite the bright spots emerging for crypto, the majority of advisors aren't likely to jump in straight away. In a recent Coinshares survey, just over half believed endorsing digital assets could impact their professional relationships, and three-fifths agreed that recommending speculative assets such as bitcoin does not align with their fiduciary duty.

Ross says the numbers underplay advisors' concerns, estimating that seven-eighths of advisors wouldn't feel comfortable recommending bitcoin as fiduciaries.

"I've grown to understand the issues most advisors have [with crypto]," he says. "There's no discounted cash flows, no intrinsic value, and [they're] not backed by anything. ... They're entitled to that opinion, even though myself and others may feel it's incorrect."

Alfred, a former financial advisor and co-founder of retirement plan ratings firm BrightScope, recalls how advisors 20 years ago hesitated to use ETFs in client portfolios because they didn't understand them, and couldn't get paid on them very easily. Times have changed, and he says history is set to repeat, or at least rhyme, when it comes to advisors and crypto.

"Bitcoin ETFs have unlocked one path to that. With an ETF, you can add bitcoin as part of a portfolio quite easily," he says. "There are also companies like Eaglebrook that are building compliant separately managed account platforms for advisors who want to offer it to their clients."

While Ross understands advisors' hesitation, he maintains those who reject crypto wholesale or can't talk about it risk losing out in the "great wealth transfer," specifically when it comes to the oldest millennials. At 401 Financial, he says he regularly gets prospects and new business from people who cut ties with advisors who were prohibited from even discussing crypto.

"I think if you can't have an erudite conversation about this, if you can't be conversant, you're dead, because you're just going to lose clients," he says.