Firms in the wealth management space will be the last to buy and sell cryptocurrencies on behalf of clients, said Tyrone Ross Jr., managing partner of NobleBridge Wealth Management, speaking at the Inside ETFs conference in Hollywood, Fla. on Monday afternoon.
While many of his clients have invested a lot of money in cryptocurrencies on their own, Ross said he cannot justify recommending the currencies in any vehicle—whether it’s a private index fund or an exchange traded fund—as a fiduciary.
“Wealth management will be the last in the [crypto] pool,” Ross said. “Once I started to really understand the space, what it can do for clients and ultimately what it means for them to hold it individually, off an exchange, in cold storage, on hardware, I have a hard time as a fiduciary saying, ‘Yes, you should own an ETF.’”
The crypto space is, undoubtedly, growing. Bitcoin currently has a market capitalization of $60 billion, while Ripple has $12 billion and Ethereum has $11 billion. But over the past year, the price of bitcoin has crashed.
“All of those people that got smoked last year are our clients,” Ross said. “We have to own that as advisors.” “As advisors, the way we have to look at this is totally different than any other entity in the market right now.”
The Securities and Exchange Commission has not yet approved any cryptocurrency ETFs. Bitwise Asset Management, which runs the Bitwise 10 Private Index Fund, has filings with the SEC for a crypto-index ETF and bitcoin ETF. Reality Shares filed today for an actively managed ETF that would invest in sovereign debt, bitcoin futures, and money market mutual funds and/or other cash equivalents.
But Ross said he would not recommend these products.
“Nothing will be introduced where I will say to my clients that you should have an allocation to this,” he said.
Jeremy Senderowicz, partner at Dechert LLP, said one of the concerns the SEC has is whether an advisor could satisfy his or her fiduciary duty by recommending cryptocurrency products. The SEC’s caution puts advisors on notice that they'd better be ready to defend their decision to invest their clients in these products should they make it.
But Hunter Horsley, CEO of Bitwise Asset Management, argues that there is a lot of progress in the crypto-investing space. In 2017, it was mostly individuals investing through self-directed accounts. But in 2018 there was a complete switch, where individuals are now more gun-shy, and professional investors, such as foundations, endowments and pension funds, have started to invest. Bitwise also works with some large advisors who are allocating clients to it. In addition, the SEC has been unwinding some of the bad behavior in the market.
Hany Rashwan, CEO of Amun AG, said there have been trillions of dollars in trading volume on bad custodians and through bad service providers. But the space is now more regulated and has better service providers and more professionally structured products. This leads to better outcomes for investors, he said.
The largely crazy speculation is behind us, and the market looks very different than it did in September 2017, he added.
“Today it’s not speculation.”