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Advisors are turning to the cryptocurrency craze as they are increasingly challenged to become asset class experts for their clients.
A recent report by Boston-based market research firm Cerulli Associates Inc. shows that only 10% of advisors today use cryptocurrency on behalf of their clients. But over the next two years, 45% say they plan to use cryptocurrency to meet growing customer demand.
Brian Mosoff, CEO of Ether Capital, a Toronto-based firm that provides investors with direct access to Ethereum, says the rapidly growing digital asset class represents an opportunity for advisors to expand their business models. , but also a risk for those who fail. to go fast enough.
He is a founding member of the Web3 Council, an industry coalition launched this week in hopes of solving the image problem of crypto. Mosoff spoke to Globe Advisor about how advisors can be prepared to answer the growing number of crypto-related questions they receive from clients.
How do you think advisors view cryptocurrencies today?
Advisors, in general, have not had to learn the lexicons of new industries or be pressured by clients to enter highly volatile and speculative territory in entirely new asset classes. But now it’s clear that [crypto] grew up and people are curious. They wonder, should they participate? How much should they participate? What access points are available? Do they buy the tokens directly? Are they buying the picks and shovels, so to speak? Advisors, who aren’t in the weeds of space, are challenged to become experts in a whole new field.
What types of access points exist to provide cryptographic exposure to clients?
The space has come a long way, even if you compare it to the last bull run a few years ago in 2017. Now we have listeners comfortable in the space, there’s an institutional grade guard and structured products such as closed-end funds in the United States.
In Canada, we have done very well. Our regulators paved the way in that we are the first marketplace in the world to create a true bitcoin cash tracking ETF (exchange-traded fund) with Purpose Investments Inc. (Purpose Bitcoin ETF BTCC-BT)
Now, in 2022, there are hotspots. Does this mean that investors can now buy every existing token through structured products? No. Are there different baskets of funds coming out, some being closed end funds and DiFi (decentralized finance) funds? There will be more access points.
Why do you think crypto poses a risk to the advisor’s business model?
There is still a lot of tension between traditional finance and digital assets that advisors are kind of caught in the middle. Even if they want to provide these access points, they may not have the capacity to do so.
Investors don’t really care where the hotspots are. If they really want to own an asset and believe in it, they will find a way to buy it. If it goes through their advisor, fantastic, but if it means they have to sign up to a platform themselves, they will.
I feel bad for advisors who want to be able to give more access to their clients. I also feel sorry for the compliance departments which are bogged down by the lack of clarity.
How can advisors capitalize on the growing demand for crypto?
The opportunity is that you have a whole new asset class with its own lexicon, a ton of complexities, and a lot of investors who want to participate but don’t have a trusted advisor to give them good information. There are businesses to be built here.
There are accounts to manage where – if you can understand what it means to be a digital asset advisor and advise clients on what kind of digital assets they should buy and how to host those assets whether in an account self-managed or wallet-based hardware – that’s something you can charge for. There is a real demand for this service at the moment.
This interview has been edited and condensed.
-Jameson Berkow, Globe Advisor Reporter
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