With cryptocurrency reaching $3 trillion in market capitalization in 2021 before falling back to $2 trillion amidst market volatility in early 2022, it is increasingly important for market participants, including asset managers and advisors, to engage and take a view. Findings from a new Cerulli white paper, Cryptocurrency: Navigating a Frontier Asset Class for Advisors and Asset Managers, suggest that nearly half of advisors indicate they expect to use cryptocurrencies by client request at some point in the future.

For advisors, cryptocurrency is increasingly too impactful to ignore as their clients—and not only younger ones—are likely to be interested in the offerings. 80% of financial advisors report they are being asked about cryptocurrencies, while only 14% are using or recommending cryptocurrencies. Only 7% of advisors report that they currently use cryptocurrency based on their own recommendation, with a slightly higher 10% reporting they use cryptocurrency by client request. In the next two years, advisors expect their use of cryptocurrency to change—45% expect they will be using cryptocurrency at some point per clients’ requests.

Despite the growing interest from investors, advisors remain skeptical of the asset class. “Many simply don’t understand or believe in the cryptocurrency as an investment,” states Matt Apkarian, senior analyst. “Advisors commonly believe that the definition of an investment involves the expectation of real return. Given the fact that crypto assets do not represent claims on a stream of income, advisors often believe that the assets lack the ability to be valued, or that they lack growth expectations,” he adds.

In addition, structural factors make it difficult or impossible for advisors to commit to the incorporation of cryptocurrency in their strategy. According to the research, many firms don’t offer investment options for cryptocurrency through their platforms, forcing advisors who want access to direct their clients to use outside platforms. “This inhibits advisors from exercising discretion on cryptocurrency assets and places a burden on the client for a portion of their planning,” remarks Apkarian. They also face opaque regulatory and tax guidelines. “Advisors encounter mixed messaging and poor information from a tax and regulatory compliance standpoint. For what currently exists as a tiny sliver of some portfolios, advisors may see an imbalance in their return on time spent versus the investment,” he adds.

At the same time, product development for cryptocurrency is occurring rapidly, for both investment products and platforms used to access cryptocurrency. According to the research, cryptocurrency-focused organizations realize the significant complexity that has come as a byproduct of rapid growth, and some are working to develop standards that aid in understanding for investors. “There will be payoff for cryptocurrency providers that devote time and resources toward advisor education,” comments Apkarian. “Advisors owe it to their clients to understand the world of cryptocurrency, so at the very least they have reasoning to support their viewpoint for not including it in their portfolios—a simple lack of understanding of cryptocurrency is not doing the client justice in assessing investment opportunities available,” Apkarian concludes.