Why the Finance Pros Don’t ‘Get’ Cryptocurrencies


It’s 2022, five years from now and you’re sitting with your virtual reality headset on, speaking to a financial planner.

Well Mr Smith, we recommend you put 50% of your assets into stocks, 20% into bonds, 10% into gold and 20% into crypto assets…

You take a seat in the virtual Ferrari that the planner has said could be yours in ten years’ time…with his continued advice of course.

Bitcoin is sitting at $1.25 million (up from $3,300 in July 2017), Ethereum is at $2.7 million (up from $375 in July 2017)…

The whole financial system, as well as the new ‘internet of things’ industry, runs on a variety of crypto assets and smart contracts. It’s a multi trillion dollar asset class…

Will this be the future?

No one knows for sure. But it’s a definite possibility.

And it’s not that farfetched a proposition. We’ve not even mentioned flying cars yet!

Yet, despite this tremendous potential, you would be hard-pressed to find any Australian investment professional recommending bitcoin or any other crypto asset exposure.

Our mates in the industry simply don’t get it….yet!

They call it ‘funny money,a fad,a bubble’ and the ‘tulip craze’ of the 21st century whenever we bring it up.

And they are being completely sensible when they say this….well in their own interests at least.

But should you listen to them?

Or even bother to ask them in the first place?

A massive mainstream blind spot

To answer this, you have to understand where they are coming from and what their actual role is in the investment world.

The advice industry is actually quite conservative these days. Even more so in the post-GFC world of FOFA (future of financial advice) reforms.

The government put in place a number of new laws in response to perceived poor practices in financial planning firms. Practices that only came to light when people started losing money during the GFC.

Today, with all these new regulations in place, it’s difficult for a financial planner to recommend anything out of the ordinary, let alone something as exotic as bitcoin or ether.

That’s of course if they wanted to. Which they don’t. Just think of all the extra paperwork!

It’s far easier to stick to the same old managed funds, blue chip stocks and bonds — appropriately diversified — that everyone else is doing.

And there is nothing wrong with playing it like that.

Conservative investment advice is not the problem we’re trying to highlight.

The problem is that most people think planners are out there analysing the markets. That they are researching new opportunities and delving into the specifics of the economy.

These planners are presumed to be experts on every single investment topic, every stock and every market move…

But they’re not.

In reality they just repeat a basic process set down by legislation and licensee oversight.

And this process has its uses.

If you want someone to help you get money into superannuation in a tax effective and compliant manner, planners are your people.

Do you want to set up a retirement income stream and assess your options? Their advice can be invaluable.

There are plenty of things planners are good for.

But spotting new opportunities is not one of them.

And yet planners revel in the perception that they are indeed experts in all things investing. The clients presume it to be true. Who are they to disagree?

I’ll confess, when I was a financial planner, I was also guilty of this on occasion. It’s hard to not have an opinion on something a client asks you about. You don’t want to look stupid. So you either regurgitate the latest talking points from the Financial Review or just say the most common sense thing that comes to mind.

The simple reality is that the general financial industry lives upon common practices for common investing.

The design of the system means everyone’s investments mostly go up and down together.

It’s not even the financial planner’s job to do any better than this! Why should they go out on a limb and risk exposure to something different…like Bitcoin?

And the same argument applies to accountants, stock brokers and fund managers. We repeat, they are unlikely to know the first thing about cryptocurrencies!

Bear this in mind when you hear opinions from certain financial experts. They are likely blind to anything but their chosen speciality. This means their opinion on crypto asset matters is likely not only worthless, but possibly dangerous.

Dangerous as it comes with an air of authority that is unjustified on this particular topic.

And this false expertise could cost you a lot of real money.

Now don’t get us wrong…

There is certainly no guarantee that cryptocurrencies will become the major asset class we think they will be.

But if you look at the big picture globally, there are increasing signs of mainstream investor acceptance. And mainstream uses.

A tidal wave of investment on its way

Big things are happening literally every day.

To give you some examples, just this month US based hedge fund Pantera Capital announced that they have raised a US$100 million fund to invest in cryptocurrencies.

Also in the US, the Winklevoss Bitcoin Exchange Traded Fund is very close to getting regulatory approval. Some think this will provide a trigger point for investments from pension funds and the like.

Structures like that have mandates requiring regulatory approval before they are even allowed to invest.

In Japan, the national government is looking into using the Factom blockchain to help manage the record keeping processes in its Y$35 trillion yen social security system. Government agencies could be some of the biggest winners from cost efficient, secure blockchains.

Even in Australia this week the front page headlines are all about stolen Medicare details and the issue of information security. The problem of course is that central repositories of data are prime targets for hackers and criminals. Blockchain systems are being created so that only you control who has access to your records. It’s complicated, but it’s better because there is no central database to hack. No pot of gold for criminals to target. You don’t hear much about it yet but decentralised, individually encrypted records are a major part of the Bitcoin and blockchain revolution.

If that takes off, the value of certain cryptos will boom.

And in Europe, a Swiss company is looking to launch the world’s first Crypto Index Fund later this year. It is to be a fully registered fund based in Switzerland. That’s the kind of legitimate investment vehicle professional investors would only use.

Jan Brzezek, a former president of UBS Asset Management, is the man behind it. This adds further mainstream credibility. They plan to start out with around 100 million euros and increase this to 3.5 billion within three years.

And it is brings up a very important point for ordinary investors today.

Despite the big rises in the values of cryptocurrencies in the past 12 months, with their potential it’s possible that we ain’t seen nothing yet.

If this tidal wave of ‘legitimate’ and professional money starts to flood in as expected, the gains over the next 12 months could be immense.

In our opinion, investors now have a window of opportunity to get in ahead of this.

For once, an ordinary investor can front-run the big boys!

That doesn’t happen very often.

With that in mind, as we have said repeatedly, you should not bet the farm on this opportunity.

But with the potentially massive returns, even a small exposure could turn into a lot of money over the next 5–10 years, if you choose to invest in the right crypto assets.

Remember, not all cryptos are created equal.

But there’s one thing we can guarantee.

By the time your planner or stock broker is recommending crypto investments, the time for the big profits will have well and truly passed.

Can you afford to wait?

If you haven’t already taken the time to check out Sam Volkering’s Secret Crypto Network yet, you can do so here.

Ryan Dinse

Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

Ryan's premium publications include:

Money Morning Australia