Have Cryptocurrencies Become a Mainstream Asset Class?

Multiple surveys report investors, institutions and Wealth Managers are warming to holding bitcoin and other cryptocurrencies in their portfolios, but limitations remain.

Morgan Stanley recently made news when it told financial advisors in an internal memo that it was creating access for its wealthier clients to three bitcoin funds. CNBC, which accessed the internal memo, said “the bank considers it suitable for people with ‘an aggressive risk tolerance’ who have at least $2 million in assets held by the firm.”

This represented the first of U.S. banks to offer its wealth management clients access to bitcoin funds, two of which are from Galaxy Digital, and the third from FS Investments and bitcoin company NYDIG.

The demand for bitcoin as an asset class grew organically, according to Morgan Stanley which said its clients demanded access to cryptocurrency products. However, the bank is putting restrictions on bitcoin investments, such as not representing more than 2.5% of a client’s total net worth.

Reuters sited a report from Citi which said nearly 20% of advisors are thinking about investing in cryptocurrencies in 2021 up from 6.3% in 2019. Wealth managers like bitcoin as an inflation hedge and that it moves independently from stocks and other assets.

Limitations on Owning Bitcoin and Crypto

Some advisors have openly said they don’t feel comfortable putting clients in crypto as they don’t fully understand it. Others expressed frustration at not being able to invest in cryptocurrency until it can be held in an exchange-traded fund or mutual fund that clears standard legal hurdles.

Goldman Sachs, JPMorgan Chase and Bank of America’s wealth management divisions did not allow advisors to offer clients direct bitcoin investments at the time of this publishing.

However, JPMorgan has filed documents for a new debt investment tied to a basked of stocks with high exposure to crypto, including MicroStrategy, a software firm that has plowed bitcoin on to its balance sheet, and leading payments firm Square.

Bitcoin’s precipitous rise above $50,000 may cool the enthusiasm of some investors. A poll of 2,000 UK investors by Censuswide said they are afraid they have missed the boat to capture further price increases, event though almost 20 percent of them expected Bitcoin to hit a GBP100,000 in 2021.