Executives from long-established wirehouses and emerging startups, alike, leaned heavily into a discussion of blockchain and Bitcoin at the Morningstar Investment Conference. They dug into the robustness of digital assets, how mainstream they are becoming and how likely they were to have an impact in the future.
The sessions on crypto would have been impossible to discuss not long ago. But advisors have increasingly been faced with questions about digital assets from their clients, as conversations once limited to Bitcoin have evolved into discussions on the merits of NFTs or the impact crypto investments will have on retirement and college savings funds.
Advisors want to allocate to the digital asset space for multiple reasons, said Matthew Hougan, CIO of Bitwise Asset Management. “From a portfolio construction aspect,” he said, “it’s a beautiful asset.” As an alternative investment, it is accessible and has high historic returns and low correlations, as well as being highly liquid, he said.
As an investment, “it’s a lot like investing in the internet in the late 1990s,” said Hougan. Prior to social media and videoconferencing, there wasn’t a great understanding of how the internet would be much more than a digital repository of information. “Crypto is the ability of money and digital property rights to exist on the internet,” he added. “It’s the most exciting technological breakthrough I’ve seen in the last 20 years.”
Morgan Stanley Investment Management has come to some of the same conclusions. With cryptocurrencies, “there are scenarios where I think it could do really well as a diversifier” and even a hedge against the uncertainties of the future, said Dennis Lynch, head of Counterpoint Global, one of Morgan Stanley's "Active Fundamental Equity" teams and a specialist in "differentiated thinking."
“You spend a lot of your life, on behalf of clients, trying to generate wealth," said Lynch. "What if the scorecard changes? What if the dollars, which are the way to measure success, are not the way to measure it 10 years from now?”
“Given Bitcoin’s persistence, it’s worth a small speculation,” he explained. “I like the idea here that you can bet small to win big.”
Indeed, crypto’s ability to outperform the market makes it an important asset class, said Annemarie Tierney, founder and principal at Liquid Advisors and one of the architects of the Grayscale Bitcoin Trust (GBTC). “I don’t think it’s more risky than some other asset classes that people are investing in,” she said. With the number of exchanges and product providers that exist, Bitcoin has evolved from “an insane product that nobody wanted to touch” to an asset that is held on the balance sheets of publicly traded companies.
Still, crypto is not for everyone, said Onramp Invest CEO Tyrone Ross Jr. Advisors should be aware of digital assets held by their clients and incorporating it into their planning and reporting.
Actually taking hold of, and managing, those assets is another story. “You want this happening away from you. You just want to be able to see it. You want to be able to integrate it into your systems," he said.
Ross outlined a situation where a hypothetical client is a crypto multimillionaire. But unless that client’s advisor has visibility into those assets, common advisor practices like providing financial planning or risk evaluation are exceptionally difficult, if not impossible.
For those still skeptical of the impact of digital assets, Ross made a case for the technology behind crypto being another democratizing force in finance.
The ubiquity of crypto assets is precisely their point. “Crypto is a godsend…to those that are underserved,” said Ross. “There’s not a real-time payment system in this country.” For many Americans, waiting for a check to clear can be a stressful and time-consuming process. Now the CEO of his own crypto startup, Ross reflected on seeing his own mother worried about when she would get money from checks she would cash.
Cryptocurrency eliminates that problem, he said. “It is digital social justice,” he explained. “The technology has brought financial services closer to those who have never had it.”