Crypto Fever Could Put Financial Advisers in a Bind

For financial advisers, cryptocurrencies just might be internet 2.0.

Many advisers I know who were active during the dot-com mania in the 1990s have described the experience this way: “Clients wanted internet stocks and tech IPOs. If I gave them what they wanted, they could lose money. If I didn’t, I could lose a client.”

Cryptocurrencies may soon put advisers in a similar bind. Once a fringe movement of blockchain visionaries, monetary futurists and conspiracy theorists, cryptos have spilled into the mainstream. According to a University of Chicago poll conducted in June, 13% of Americans surveyed said they bought or traded cryptocurrencies during the previous 12 months, slightly more than half the number who said the same about stocks.

And that’s almost certainly just a preview of crypto fever. Two-thirds of those surveyed said they haven’t bought cryptocurrencies because they don’t know how, or they have concerns about security. The two Bitcoin exchange-traded funds that debuted in the U.S. last week go a long way to removing those barriers, and more are set to follow. Sprinkle in the surging prices of Bitcoin and other cryptocurrencies — and the inevitable FOMO that stirs up — and it’s a recipe for another speculative mania.

The ecosystem of custodians, brokers and technology providers that supports advisers is counting on it. Last week, Interactive Brokers began offering advisers custody and trading access to four digital coins, including Bitcoin, warning that, “If your clients haven’t started asking you to add cryptocurrencies to their portfolio allocations it’s likely that they will soon.” U.S. Bank began offering crypto custody for big money managers earlier this month. And technology providers that cater to advisers are offering to “educate” them about cryptocurrencies so they can sell them crypto-related analytics. The message is clear: Get hip to cryptos or get left behind.

But unlike the dot-com days, advisers probably won’t be swamped by crypto-crazed investors. The internet boom was all about stocks, so it made sense to call an adviser, or more likely a broker in those days. Investors also had little choice because online trading was new and not yet widely adopted in the 1990s. Today, no one needs an adviser to buy cryptocurrencies, particularly now that crypto ETFs have arrived.