‘Difficult, if not dangerous time’ to recommend crypto to clients, industry exec says

When it comes to crypto, financial professionals are “frustrated” as their firms look to stay out of regulators’ crosshairs, according to the founder of the Digital Assets Council of Financial Professionals (DACFP).

Ric Edelman, who also founded Edelman Financial Engines, said regulatory uncertainty within the space — highlighted by SEC legal actions against crypto exchanges Coinbase and Binance last week — has reinforced that it is “a difficult, if not dangerous time” to recommend crypto to clients.

“When you have the SEC engaging in such aggressive regulatory enforcement behavior, you don’t want to put yourself in a position to become the next target,” Edelman told Blockworks during an interview at the DACFP Vision conference in Austin, Texas.

The number of advisers that own crypto is significantly higher than the ones who suggest such investments to clients — in part, he added, because of restrictions firms put on their financial pros.

A January survey by Bitwise Asset Management, for example, found that while 37% of advisers reported owning crypto assets in their personal portfolios, just 15% said they currently allocate to crypto in client accounts.

“They don’t want to do something and then be accused of doing something wrong; that’s what Coinbase is experiencing,” Edelman said. “[They’re] not sure what products are appropriate, and so advisers are handcuffed and they’re frustrated.”

“These restrictions are not found in any other asset class,” he added. “It’s partly because firms aren’t sure what will, in the long run, be viewed as acceptable practice.”

Keep reading for more excerpts from Blockworks’ interview with Edelman.

Blockworks: How do you see the actions against Coinbase and Binance impacting the way people are thinking about crypto?

Edelman: There’s a difference between crypto and the crypto industry. The crypto asset class is acting without regard to these SEC actions. This is a global asset, and people outside the US frankly don’t care what the SEC is doing, because it isn’t having any impact on the underlying, fundamental investment thesis for this asset class.

What we find is that it isn’t changing anyone’s views. It’s simply reinforcing them. If you are a crypto skeptic, you are using the Binance and Coinbase lawsuits as evidence that you’re right to be skeptical.

On the other hand, if you’re a crypto believer, you’re using these lawsuits as evidence that there is a targeted campaign by regulators to try to crush crypto. And so your enthusiasm and support for crypto is unfazed. In fact, you’re digging in your heels.

It’s kind of similar to Trump’s indictments. If you are a MAGA Republican, you’re mad as hell. And if you’re a progressive liberal, you’re thrilled. Nobody’s changing their opinions of Donald Trump over these indictments — it’s just reinforcing their views.

Blockworks: What other barriers are there for financial professionals?

Edelman: Nobody in the financial services community really wants to talk about crypto right now. There are many other issues that everybody’s facing.

We’ve been dealing with, up until recently, the budget crisis. We’re still dealing with the recession threats and rising inflation. We’re dealing with the overall economic uncertainty and the coming commercial real estate market collapse that everybody’s expecting to begin over the next several months. We’re looking at continued concerns around Russia and China.

Everybody’s got bigger problems to focus on than crypto, and so crypto has kind of been kicked to the sidelines pending these other issues and waiting for the regulatory environment to settle down.

Blockworks: So how do you see this wait-and-see phase changing? And how long will it take?

Edelman: A $50,000 bitcoin will change all their views. It’s classic behavioral finance — everybody was excited about bitcoin at $50,000, and they became disenchanted at $20,000.

Here we are at a relatively low point, and everybody wants to ignore bitcoin for now.

A couple of things are going to happen over the next year. We’re going to see legislation pass Congress. This legislation is going to put the SEC back in its cage and it’s going to sharply curtail Gary Gensler’s crusade, as ill-guided as it is.

Secondly, we’re going to have regulatory clarity as a result of this, so that the financial services industry will become comfortable in engaging in crypto because they will know the rules of the road.

Third, we will have a higher price of bitcoin, which will reinstate everybody’s level of interest. And many of the other economic and geopolitical concerns that are preoccupying everybody’s minds today will have been resolved.

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