cryptocurrencies

Josh Brown: Until Custody Risk Is Eliminated, Crypto Assets Aren’t for Wealth Managers

Until custody risk is virtually eliminated, advisors won’t buy and sell crypto assets on behalf of clients. But they still need to be well-versed in the new asset class.

When Ritholtz Wealth Management CEO Joshua Brown headlined the 2017 Consensus Invest conference with Howard Lindzon, the founder and general partner of Social Leverage, the two joked about how wealthy many in the packed ballroom at the New York Marriott Marquis had become from buying crypto assets over the course of the year.

Brown was back this year hosting a crypto and blockchain panel discussion, but it filled only half of the same ballroom on Tuesday. The one-day event is dedicated to digital currencies, tokens and related technologies.

The big takeaway from the event: Until custody risk of crypto assets is virtually eliminated, the new asset class isn’t one financial advisors will ever deal in on behalf of retail investors. But advisors should nonetheless educate themselves about crypto assets because their broader relevance is a question of when, not if, according to some prominent wealth managers.

During his panel discussion Brown said crypto assets just aren’t a wealth management topic, largely because the most-trusted financial services firms won’t custody the assets yet. In an interview with Silver Lake Co-founder Glenn Hutchins Tuesday afternoon, Jay Clayton, the chairman of the Securities and Exchange Commission, said the SEC had turned down bids to list bitcoin exchange traded funds because the underlying assets face risk and manipulation—something better custodial services could remedy.

Until then, crypto assets remain more of a curiosity for both advisors and clients, Brown said. However, the new asset class is still one advisors should stay current on, because there are already related investment opportunities available. Digital currencies aside, companies that service the market, and traditional financial services firms leveraging the underlying blockchain technology, might prove to be good investments.

Tyrone Ross Jr., the managing partner of Noblebridge Wealth in Montclair, N.J., has emerged as one of the leading voices on crypto in wealth management and participated in the panel led by Brown. (Ross is also one of WealthManagement.com’s Ten to Watch in 2019.) His clients often seek his advice on their crypto assets he said, but he spends most of his time making sure their investments are diversified. Many retail investors found themselves very wealthy after Bitcoin’s surge in the second half of 2017. It began 2017 trading under $1,000 and eventually surged to more than $19,000 in December before sliding throughout this year.

It has dipped significantly in recent weeks, trading around $3,700 on Tuesday afternoon, but Ross said he hasn’t received one call or message from a panicked client. Like other panelists, he said that his clients are bullish on the future of the asset class. 

“Every boon has a bust. It’s just the nature of it and I think having a bust now is a good thing,” said panelist Mark Casady, the co-founder of Vestigo Ventures and the former CEO of LPL Financial.

Casady said the asset class is here to stay and that Vesitgo Ventures is actively looking for opportunities to invest in companies that can benefit from the underlying blockchain technology powering crypto assets.

Brown’s panel was especially high on the prospect of tokenized real estate, which would enable more investors to participate in property deals that would otherwise be unavailable to them. Ari Paul, the co-founder and CIO of BlockTower Capital, said that within 20 years he thinks regulators will require real estate to be tokenized. That evolution, if it occurred, could drastically change how involved advisors are in crypto assets and the level of knowledge they would be expected to have.

Panelists were split on what impact regulatory approval of a crypto asset-based exchange traded fund would have on prices and the market overall. Brown said he thinks the price of bitcoin would triple on news that an ETF based on the digital currency was approved. Ross was “not a fan” of a bitcoin ETF, arguing that a derivative product defeats the purpose crypto assets were created for in the first place, which is as a store of value that owners have sole control over.

But Paul said that small investors have much to gain from ETFs, futures contracts and other products that will draw large, trusted institutions to crypto assets and help grow the market and improve liquidity. “We want skin in the game from people that are wealthy and powerful,” he said.

The crowd at this year’s conference seemed to be a reflection of that phenomenon. There were fewer young software developers donning jeans and more attendees in suits. 

 

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