As the sheen of cryptocurrency grows ever more enticing, wealth managers find themselves consistently deluged with clients curious about investing in this emerging asset class. But as with any investment, the volatile world of digital assets is teeming with both lucrative opportunities and risky pitfalls.
It’s no secret that 90% of financial advisers have had a flurry of crypto-related queries over the past year, a trend revealed by The Bitwise/VettaFi 2023 Benchmark Survey of Financial Advisor Attitudes Toward Crypto Assets. Amidst the rise of this budding asset class, Registered Investment Advisors (RIAs) and financial advisers must thread the needle of complex considerations surrounding security and compliance.
Despite a current dearth of awareness, three investment vehicles loom as viable options for financial advisers—directing clients to self-invest at a retail crypto exchange like Coinbase, over-the-counter trusts such as the Grayscale Bitcoin Trust, or exploring separately managed accounts (SMA) in the crypto realm.
Witnessing a swift proliferation in the past decade, SMAs saw a trillion-dollar surge in assets; from a modest $550 billion in 2011 to an impressive $1.7 trillion ten years on. The lure of SMAs rests on the pillars of tax optimization, direct ownership, professional management, and customization—a recipe that promises to thrust crypto SMAs into the mainstream amongst wealth managers.
The capricious crypto market, rife with volatility, does bear the silver lining of appealing tax optimization prospects. By employing a crypto SMA, investors can hold digital assets directly under their name, thereby unlocking tax benefits dormant in OTC trusts or private funds.
While the volatile nature of the crypto sphere can make one’s head spin, direct ownership emerges as a soothing balm—minimizing tracking error prevalent in products like public OTC trusts, which are prone to significant premiums and discounts. Moreover, crypto SMAs are cloaked with 24/7 liquidity, offering investors the freedom to buy and sell at their convenience.
Crypto SMAs are transcendently convenient, seamlessly integrating with wealth managers’ reporting platforms such as Orion, Addepar, Black Diamond. This ease of access facilitates advisers for modeling, reporting, and billing on their clients’ digital asset holdings.
Entrusting your funds to professionals in an asset class as nuanced as crypto is a prudent move given the difficulty of tangible market comprehension to make informed allocation decisions. Crypto SMAs provide this boon—outsourcing digital asset portfolio management and trading to those specialized in understanding the digital asset market.
In an asset class as nascent as cryptocurrency, security is of paramount concern. Consequently, using a crypto SMA guarantees participation of established, qualified custodians equipped with the tools to navigate the labyrinthine security and compliance considerations, offering robust cold storage, trading, and security solutions.
In a nutshell, while crypto investments may appear an enticing avenue, the path is fraught with myriad complexities. Therefore, it is prudent to tread cautiously, armed with the right strategies and tools. Crypto SMAs provide an apt solution—blending the benefits of direct ownership, tax optimization, and professional management, while ensuring rigorous security via institutional-grade custodians.
Source: Coindesk
