Brooke Stoddard: How Crypto Spot ETFs Can Help Financial Advisors

 

By Brooke Stoddard, VP Investor Solutions at Grayscale will be speaking at the upcoming Benzinga Future Of Digital Assets conference. Mark Nov. 14 on your calendar for the must-attend gathering in the industry!

The cryptocurrency asset class is nearly fifteen years old, yet financial advisors in the U.S. still face numerous challenges when investing for their clients. In the column below, I summarize three of these challenges and explain how we believe crypto spot ETFs may help financial advisors to overcome them.

Monitoring Risk

Current state: Financial advisors are responsible for monitoring the overall risk of a client portfolio. If a client independently holds cryptocurrency outside their financial advisor relationship, the financial advisor cannot monitor how that position might impact overall portfolio risk. This challenge has persisted because there are few regulated investment vehicles in the U.S. through which financial advisors can gain exposure to Bitcoin, Ethereum, or other crypto assets for their clients. 

Future state: We believe that should crypto spot ETFs receive regulatory approval, they may help to solve this problem. ETFs typically meet the legal, compliance, and due diligence requirements of registered investment advisors (RIAs) and wealth management firms. As such, we feel crypto spot ETFs may be adopted by the largest brokerage and custody platforms used by RIAs and wealth management firms. Furthermore, crypto spot ETFs may be liquid and efficient. It is envisioned that financial advisors will be able to buy and sell them on the same platforms where they access investments for traditional assets, effectively better enabling them to monitor client risk – including cryptocurrency risk – in one place. 

Reporting

Current state: When cryptocurrency investments are held outside of a financial advisor relationship, those positions are not captured in an advisor’s reporting tools. That means that performance, trades, and tax implications cannot be managed by the advisor.

Future state: The accessibility of crypto spot ETFs on brokerage and custody platforms will allow for seamless reporting and surveillance of crypto performance, trades, and tax implications, with the same visibility that financial advisors expect for traditional assets. Financial advisors will be able to manage cryptocurrency assets and traditional assets in a single location.

Resources

Current state: Financial advisors need an array of resources to manage crypto investments for clients. When you think about the universe of resources that financial advisors use to manage traditional assets – such as equities or fixed income – the number of options for crypto may seem limited by comparison.

Future state: We expect the availability of institutional resources to support financial advisors to expand as crypto spot ETFs come to market. Entrepreneurs and established firms will likely develop new services, infrastructure, research, data, risk monitoring, portfolio management tools, and turnkey asset management platforms (TAMPs) designed for financial advisors who manage cryptocurrency investments for clients. As the cryptocurrency asset class grows over the next fifteen years, we believe an industry of resources and tools will develop simultaneously.

Conclusion

Despite challenges that exist today, we can celebrate certain challenges that the cryptocurrency asset class has overcome. For example, financial advisors have overcome the challenge of education, namely learning about the asset class from a finance and technology perspective. Nearly fifteen years of cryptocurrency history has led to the production of educational materials that are widely available to financial advisors. As crypto spot ETFs become part of asset allocation and portfolio management discussions, the homework that financial advisors have already done to understand cryptocurrency will help them to optimally serve their clients.

Brooke Stoddard is speaking at Benzinga’s Future of Digital Assets conference on November 14th on a panel called ‘The Rise of Crypto ETFs and Regulatory Considerations.’ 

Important Information

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Brooke Stoddard is the Vice President on the client team at Grayscale Investments, the world’s largest digital currency asset manager with over $24 billion in assets under management. Since joining Grayscale in 2019, Brooke has educated institutional and high net worth investors about the digital currency asset class and helped to raise billions of dollars in new capital into Grayscale products. Prior to joining Grayscale, Brooke was a private wealth advisor at Goldman Sachs, where he advised institutional and high net worth investors on asset allocation strategies and portfolio management. Brooke earned his Bachelor of Arts in History from Princeton and his MBA from Wharton at the University of Pennsylvania.