The crypto winter, the term often used to describe the dramatic collapse in cryptocurrency prices over the past year, is apparently having little impact on financial advisors determined to ride the waves in the fast-evolving digital currency space.
Even with bicoin, the best-known cryptocurrency, down nearly 65% from its peak of just over $65,000 in November 2021, the true believers are determined to focus on the long term.
A report out Friday from Bitwise and VettaFi shows 60% of financial advisors are long-term bullish on crypto.
Perhaps what makes the findings so surprising is that the research was conducted prior to the recent rally that's seen the price of bitcoin jump nearly 40% over the past four weeks.
“I was surprised by the findings; I thought the downturn would have scared off advisors,” said Todd Rosenbluth, director of research at VettaFi.
“Advisors seem to be relatively loyal to the long-term view and potential benefits of crypto,” he added. “Usually when something sells off, people want to tell you they’re concerned. I think that bodes well for future crypto investing.”
If advisors are starting to show a new interest in crypto it could be, at least in part, to try and keep up with their clients. The survey showed that 14% of advisors say all of their clients are investing in crypto, which compares to 8% last year and 6% two years ago.
Forty-five percent of advisors said some of their clients are investing in crypto, which compares to 62% last year and 34% two years ago.
When asked if they’re investing in crypto in their personal accounts, 37% of advisors said yes, which compares to 47% last year and 24% two years ago.
When it comes to accessing crypto, exchange-traded funds have become the most popular avenue, even though U.S. regulators have not yet permitted funds that invest directly in the digital currency.
When asked how they gain exposure for clients, 25% said they use ETFs that invest in crypto companies. The second most popular way of gaining exposure, at 17%, is directly investing in various cryptocurrencies.
“I think ETFs are what advisors are most interested in because that’s what’s available,” said Rosenbluth.
As an example of the appeal of crypto, Rosenbluth referenced the ProShares Bitcoin Strategy ETF (BITO). At $786 million, BITO is the largest cryptocurrency ETF, and it had $161 million in net inflows last year despite recording a 64% decline. So far this year, the fund is up 41%, essentially tracking the price fluctuations of bitcoin.
Extreme price volatility has become a trademark of cryptocurrencies, and some advisors have kept away for that reason. But after four peak-to-trough cycles over the past 12 years, even some naysayers are taking notice.
“For the first time that I can recall, I came into 2023 being bullish on bitcoin,” said Paul Schatz, president of Heritage Capital.
Schatz said his clients have shown little interest and he thinks the existing ETFs are “flawed and need more regulation,” but he likes the price patterns he sees.
“I saw the downside as $14,000 to $15,000 and the upside to almost $30,000,” he said. “That’s pretty good risk-reward.”
At around $23,000, bitcoin is still well off its peak but the pattern moving toward the next reduction of the crypto payment awarded to miners of the digital currency in 2024 suggests another upcycle looming.
Ric Edelman, founder of the Digital Assets Council of Financial Professionals, said the price of bitcoin has eventually doubled every time the payment to miners has been cut in half, which is why he expects bitcoin’s price to reach $150,000 by the summer of 2025.
Over its short history, since 2010, the price of bitcoin has suffered three negative years. But there have been big declines, including a 58% decline in 2014, a 73% decline in 2018, and a 65% decline in 2022.
The 11 positive years, meanwhile have ranged from 35% in 2015 to 9,900% in 2010.
With that in mind, it’s not a surprise that price volatility was listed among the top reasons advisors are avoiding crypto currencies.
Asked about their reasons for not investing in crypto, 65% of advisors listed regulatory issues as a top concern, followed by price volatility at 51%.
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