Seven in ten (72 per cent) UK advisers have spoken to their clients about investing in cryptocurrencies, according to a survey by Wisdom Tree.
The survey was conducted by CoreData Research and polled 600 advisers across Europe, ranging from wholesale financial advisory firms to wealth managers and family offices. Of the 600, 100 were advisers based in the UK.
The research found nearly half (48 per cent) of UK advisers said they believed cryptocurrencies can be used for diversification as an uncorrelated asset in portfolios. In addition this, 17 per cent of UK advisers said they could be used similarly to portfolio allocations into gold.
At the same time 35 percent of UK advisers said the “lack of intrinsic value” was the reason they had not made allocations to cryptocurrencies in a professional capacity.
The next most common barriers was the lack of regulations and lack of trust, both of which 34 per cent pinpointed as big barriers for allocating capital to cryptocurrencies.
The research found almost half of clients (45 per cent) intended to step outside of their adviser relationship to allocate funds to the asset class.
However, many advisers told FTAdviser they disagree.
Jason Barefoot, chartered financial planner at Ascot Lloyd, said: “I have only had a small number of clients ask me about cryptocurrency. No client has 'sacked' me to invest in crypto, and to my knowledge none of my clients have a notable exposure to it.
“I agree with the findings as to why crypto should not be in a portfolio – namely that it’s an intangible asset, it’s unregulated, and there’s no history on which to base financial projections. The latter may come in time, but until the former two are addressed, it wouldn’t even be looked at.”
The Financial Conduct Authority has repeatedly warned investors about being prepared to lose all their money if they choose to invest in crypto.
The price of major crypto currencies crashed on Wednesday but Bitcoin rallied on Thursday morning to climb back to above $61,000 (£44,000). Others like Shiba Inu and Tether have kept climbing throughout the week.
Philip Milton, of Philip J Milton and Company, said his firm has monitored the news but will not be changing its stance.
“These things do not exist. They are ethereal. They are not assets, they are not a currency and do not display the characteristics of a currency. They rely purely on the collective faith of the participants, like fiat currencies.
“They are the items of casinos based on pure chance and gamble and whilst yes, people may make lots of money on them, they can lose lots of money too (all their investment too) and by nature of the beast, the bank always wins.”
Meanwhile, Alistair Cunningham, financial planning director at Wingate Financial Planning, said he wouldn’t “touch cryptocurrencies with a barge pole”.
“There are no current legitimate purposes and they seem only to be for speculation and money laundering, neither of which any reasonable investor should consider,” he said.
'The latest fad'
The survey also asked respondents about risk appetite since the onset of the Covid-19 pandemic. The 600 advisers surveyed across Europe are responsible for approximately €400bn (£336bn) in assets under management.
Almost half (47 per cent) of advisers across Europe stated their clients were looking for riskier investments, perhaps driven by rising inflation and low interest rates.
Yet in the UK, 52 per cent said appetite for risk was unchanged, while 27 per cent noted an increase in demand for riskier investments.
Jason Guthrie, head of digital assets at WisdomTree, said: “Cryptocurrencies are a young asset and can be used for different roles in different portfolios. Categorising all assets in the same way ignores the nuances and different use cases of coins, mega cap coins like Bitcoin and ether are very different to the wide range of altcoins available on the market."
Guthrie explained that in the EU, advisers are providing access to cryptocurrency exchange traded products (ETPs) and keeping clients ‘on their books’, although the UK was not there yet.
He said: “If clients are willing to step outside of their adviser relationship, the best thing an adviser can do is get up to speed on the asset class and guide them on their journey into cryptocurrencies, as this will minimise capital risk. Risk management and education should be a priority, especially with such a nascent and fast-moving asset.”
But Barefoot disagreed as he said crypto does not play a role in a portfolio and if it were to be “the new-world”, then he would expect future businesses to create operations that embrace this in an efficient manner.
“Those businesses that are successful in doing so would inevitably rise up the stock market listings as it gains traction – leading to the company itself directly being a part of the client’s wealth that has exposure to small companies within the portfolio.
“If crypto progresses beyond this, these smaller companies will either be acquired by larger institutions, or grow themselves to this level – again, leading to clients gaining increased exposure as such companies grow.
“But, if crypto is just the latest fad, such companies won’t reach the index listing to warrant an indirect placement in the client’s portfolio. That’s a benefit of owning equity indices.”
sonia.rach@ft.com
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