More than eight in ten (83%) of European advisers have spoken to their clients about investing in cryptocurrencies, with almost a third of clients (32%) intending to step outside of their adviser relationship to allocate to the asset class, a survey commissioned by WisdomTree has revealed.
The survey, conducted by CoreData Research an independent research agency, polled 600 professional investors across Europe, ranging from wholesale financial advisory firms to wealth managers and family offices. The investors surveyed are responsible for approximately €400bn in assets under management.
While the regulatory landscape may create a challenging environment for European advisers and their clients, regulation is not currently seen as the biggest barrier to making allocations.
One third of European advisers (33%) said volatility is the most common reason they have not made allocations to cryptocurrencies in a professional capacity. The next two most common barriers for European advisers are the lack of intrinsic value (31%) and lack of regulation (30%), both pinpointed as big barriers for allocating capital to cryptocurrencies.
Awareness of and investment into digital assets have been growing in recent years, with many professional investors now aware of the role they can play in a portfolio.
Over a third (41%) of European advisers believe they can be used for diversification as an uncorrelated asset in portfolios. An allocation to cryptocurrency of 1-2 percent was deemed appropriate by a third (34%) of European financial advisers.
Jason Guthrie, Head of Digital Assets, Europe, 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.
Despite the volatility we have seen this year, demand for digital assets has not dampened and advisers need to be ahead of the curve to ensure clients' portfolios are managed effectively and the risks around investing in this new asset class are minimised."
When asked about risk appetite since the onset of the Covid-19 pandemic, almost half (47%) of advisers across Europe stated that their clients are looking for riskier investments, perhaps driven by rising inflation and low interest rates. 34% said appetite for risk was unchanged, while 47% noted an increase in demand for riskier investments.
With the cryptocurrency market experiencing significant volatility in 2021, it has become increasingly important for advisers to have access to educational material and research to support clients.
Guthrie added: "In the EU we are seeing advisers providing access to cryptocurrency ETPs and keeping clients ‘on their books', although this is still a challenge for most financial advisers. Investing through ETPs allows exposure to the underlying asset without the investor having to manage its public and private keys, meaning clients do not have to worry about keeping coins in digital wallets and will have better access to advice and educational material.
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."
