96% of Advisors Got Investor Questions About Crypto Last Year. Why They Still Urge Caution

Investor interest in cryptocurrencies surged dramatically last year as bitcoin (BTCUSD) hit multiple all-time highs, but financial advisors are still urging caution, no matter how tempting an investment might seem.

Ninety-six percent of advisors surveyed by crypto asset manager Bitwise and analytics firm VettaFi said they’ve received a question about crypto in the past year. That’s up from 88% the year prior. The number of advisors allocating funds to crypto investments in client portfolios also doubled last year.

Investor FOMO From Bitcoin Rally?

Early in 2024, demand for bitcoin from the newly launched spot bitcoin exchange-traded funds (ETFs) and a slowing supply of new bitcoin thanks to the halving event propelled bitcoin prices higher.

Later in the year, bitcoin notched a record high of more than $108,000 in December following the results of the U.S. presidential election that held promise of more favorable crypto regulation from a supportive Congress and the incoming Trump administration.

“Any time an asset, any asset, experiences positive returns like the bitcoin ETFs have since their launch is going to create a situation where clients are fearful of missing out (FOMO), especially when it is shiny and new,” said Andrew Cook, partner & director of investment management at Berman McAleer.

And that FOMO is not limited to retail investors. Nearly half of the advisors surveyed who worked at institutional investors like pensions, registered investment advisors (RIAs), and wirehouses said they had exposure to cryptocurrencies in their personal portfolios.

Why Investors May Want To Curb Their Crypto Enthusiasm

While financial advisors have noticed an uptick in questions about crypto from their clients, not all are on board with investing in digital assets. Many advisors still cautious about suggesting clients include cryptocurrencies in their portfolios.

In the survey, only 14% of planners said they currently allocate funds to crypto in their clients’ accounts. That number is higher for other types of advisors such as RIAs and wirehouse advisors.

Experts generally recommended keeping allocations to crypto at less than 10% or even lower than 3%.

Stephan Shipe, a certified financial planner (CFP) and investment advisor at Scholar Financial Advising, says many of the questions he’s received are from clients who already are invested in crypto. “And with the growth that’s happened, it has become a significant portion of their [client’s] portfolios,” Shipe said.

He’s suggested that these clients reduce their stake so they don’t have a large portion of their portfolio in a high-risk asset.

Bitcoin is also an incredibly volatile asset, and can often experience large price swings. For example, in the past three months it soared from trading close to $67,000 a day before the U.S. elections in November to $108,000 in early December, then was briefly trading below $90,000 earlier this week.

And that’s why Justin Waring, executive director, senior total wealth strategist at UBS, is wary of crypto and advises clients to only invest money that they would be OK losing.

“To the extent that clients do want to have exposure to the potential upside, we strongly recommend limiting that position and often [advise] putting it in a different account, like an entertainment account,” Waring said.

He thinks crypto ETFs are the least risky way of investing in crypto. He notes that by investing directly, some may be at risk of losing their entire investment if they forget the password to their crypto wallet.