Advisors ‘caught in the middle’ of tension between traditional finance and digital assets

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Advisors are coming around to the cryptocurrency craze as they’re being challenged increasingly to become experts on the asset class for their clients.

A recent report from Boston-based market research firm Cerulli Associates Inc. shows only 10 per cent of advisors use cryptocurrency today on behalf of their clients. But over the next two years, 45 per cent say they expect to be using cryptocurrency to meet growing client demand.

Brian Mosoff, chief executive officer of Ether Capital, a Toronto-based company that provides investors with direct access to ethereum, says the rapidly rising digital asset class represents an opportunity for advisors to expand their business models, but also a risk for those who fail to move fast enough.

He is a founding member of the Web3 Council, an industry coalition launched this week in hopes of fixing crypto’s image problem. Mr. Mosoff spoke with Globe Advisor about how advisors can be prepared to answer the growing number of crypto-related questions they’re getting from clients.

How do you think advisors view cryptocurrencies today?

Advisors, typically, have not had to learn the lexicons of new industries or be pushed by clients to enter highly volatile, speculative territory in brand new asset classes. But now it’s clear that [crypto] has grown and people are curious. They’re wondering, should they participate? How much should they participate? What are the available access points? Do they buy the tokens directly? Do they buy the picks and shovels, so to speak? Advisors, who are not in the weeds of the space, are being challenged to become experts in a brand new area.

What kind of access points exist to provide crypto exposure to clients?

The space has come a long way even if you compare it to the last bull run a few years ago in 2017. Now, we have auditors comfortable in the space, there’s institution-grade custody, and structured products like closed funds in the U.S.

In Canada, we’ve actually done really well. Our regulators have led the way in that we are the first market in the world to do a true bitcoin spot-tracking ETF (exchange-traded fund) with Purpose Investments Inc. (Purpose Bitcoin ETF BTCC-B-T)

Now, in 2022, there are access points. Does that mean investors can now buy every single token that exists through structured products? No. Are there different baskets of funds that are coming out, some being closed end and DiFi (decentralized finance) funds? There will be more access points.

Why do you believe crypto represents a risk to the advisor business model?

There is still a lot of tension between traditional finance and digital assets that advisors are kind of caught in the middle. Even if they want to offer those access points, they might not have the capacity to do so.

Investors don’t really care where the access points are. If they really want to own an asset and believe in it, they’re going to find a way to buy it. If it happens through their advisor, fantastic, but if it means they have to sign up to a platform themselves, they will.

I feel bad for the advisors who want to be able to give their clients more access. I also feel bad for the compliance departments who are bogged down by the lack of clarity.

How can advisors take advantage of rising crypto demand?

The opportunity is you have a whole new asset class with its own lexicon, a ton of complexities, and a lot of investors who want to participate but don’t have a trusted advisor to give them good information. There are businesses to be built here.

There are accounts to be managed where – if you can figure out what it means to be a digital asset advisor and advise clients on what sort of digital assets they should buy and how to host those assets whether in a self-directed account or a hardware-based wallet – that is something you can charge for. There is real demand for that service right now.

This interview has been edited and condensed.

– Jameson Berkow, Globe Advisor Reporter

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