Crypto investments are exciting and promising for many investors. But there’s another word some experts use to describe them — “uncomfortable.”
Matthew Hougan, chief investment officer of Bitwise Asset Management, likened it to “investing in the internet in the late 1990s,” at the Morningstar Investment Conference this week.
“We didn't know what the internet would do. It was put[ing] newspapers on the web. People didn't understand that you could have social media, you could read and write, we can do Zoom calls — none of that was predicted,” Hougan said. “Crypto is the ability for money and digital property rights to exist on the internet. And that's actually the largest addressable market the internet's ever gone after. So yes, it's a little bit uncomfortable. You're like an early stage tech investor.”
Hougan joined Tyrone Ross, CEO of Onramp Invest, and Annemarie Tierney, founder and principal of Liquid Advisors, in a panel discussion moderated by Ben Johnson of Morningstar that touched on advisors’ fiduciary duties, the possibility of a Bitcoin ETF, and more in its session titled “Advisor Guide to Cryptocurrencies” Thursday.
The panelists encouraged advisors to invest in educating themselves about blockchain because it’s “not an investment for everybody, but there's a large few that it is for,” Ross said.
“Your clients own it. There's 60 million accounts at Coinbase. There's 22 million at Robinhood. We can do this for the next hour,” Ross said.
Hougan echoed that sentiment.
“There are more Coinbase accounts than Charles Schwab accounts. If you haven't asked your clients if they're investing in crypto, that's the first thing you should do after this panel because they're already doing it,” he said.
Johnson asked the panelists about advisors’ fiduciary duties, and if they were at odds with allocating an asset that is volatile and is being flagged by the SEC for manipulation and fraud concerns.
“The fact that you can't run DCF on it doesn't necessarily mean that it can't work in the fiduciary standard. You can't run DCF on gold. You can't run DCF under many commodity standards,” Hougan said. “I think for advisors, what they need to do is to take a minute and actually understand the core technology, understand what a blockchain is, understand the primitives it introduces into the world, and then dwell on what those could be in the future.
“You could explain blockchains yourself to your clients … in about 90 seconds. I don't think it's that complicated. I think people make it complicated, but I think it can be very simple,” Hougan said.
Tierney said “it’s like any other asset class that is volatile.”
“This isn't the only volatile asset class that you allocate to your clients’ portfolios. And so how do you deal with that, from a disclosure point of view?” Tierney said. “You have to understand your client's risk tolerance very carefully. But I don't think it's more risky than some other asset classes that people are investing in.”
On the possibility of a Bitcoin ETF in the U.S., Hougan said: “You don't need a Bitcoin ETF. You could buy it directly. You could buy it through a PayPal app. … We didn't need a gold ETF either.
“The beauty of ETFs is that they plug in seamlessly into the way financial advisors work, and that's why it will be a game-changer and open up the market significantly,” Hougan said.
Ross said “an ETF doesn't help my mother.”
“Fifty percent of the people in the South Bronx are unbanked. Crypto is a godsend to these people. We need to address that. That is the quintessential use case,” Ross said. “It is digital social justice. It is the gravity of social justice and financial services bringing it closer to people that have never had it. Never had it. This country has financially redlined people.”
