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Advisors are coming around to the cryptocurrency craze as they’re being challenged increasingly to become experts on the asset class for their clients.

A recent report from Boston-based market research firm Cerulli Associates Inc. shows only 10 per cent of advisors use cryptocurrency today on behalf of their clients. But over the next two years, 45 per cent say they expect to be using cryptocurrency to meet growing client demand.

Brian Mosoff, chief executive officer of Ether Capital, a Toronto-based company that provides investors with direct access to ethereum, says the rapidly rising digital asset class represents an opportunity for advisors to expand their business models, but also a risk for those who fail to move fast enough.

He is a founding member of the Web3 Council, an industry coalition launched this week in hopes of fixing crypto’s image problem. Mr. Mosoff spoke with Globe Advisor about how advisors can be prepared to answer the growing number of crypto-related questions they’re getting from clients.

How do you think advisors view cryptocurrencies today?

Advisors, typically, have not had to learn the lexicons of new industries or be pushed by clients to enter highly volatile, speculative territory in brand new asset classes. But now it’s clear that [crypto] has grown and people are curious. They’re wondering, should they participate? How much should they participate? What are the available access points? Do they buy the tokens directly? Do they buy the picks and shovels, so to speak? Advisors, who are not in the weeds of the space, are being challenged to become experts in a brand new area.

What kind of access points exist to provide crypto exposure to clients?

The space has come a long way even if you compare it to the last bull run a few years ago in 2017. Now, we have auditors comfortable in the space, there’s institution-grade custody, and structured products like closed funds in the U.S.

In Canada, we’ve actually done really well. Our regulators have led the way in that we are the first market in the world to do a true bitcoin spot-tracking ETF (exchange-traded fund) with Purpose Investments Inc. (Purpose Bitcoin ETF BTCC-B-T)

Now, in 2022, there are access points. Does that mean investors can now buy every single token that exists through structured products? No. Are there different baskets of funds that are coming out, some being closed end and DiFi (decentralized finance) funds? There will be more access points.

Why do you believe crypto represents a risk to the advisor business model?

There is still a lot of tension between traditional finance and digital assets that advisors are kind of caught in the middle. Even if they want to offer those access points, they might not have the capacity to do so.

Investors don’t really care where the access points are. If they really want to own an asset and believe in it, they’re going to find a way to buy it. If it happens through their advisor, fantastic, but if it means they have to sign up to a platform themselves, they will.

I feel bad for the advisors who want to be able to give their clients more access. I also feel bad for the compliance departments who are bogged down by the lack of clarity.

How can advisors take advantage of rising crypto demand?

The opportunity is you have a whole new asset class with its own lexicon, a ton of complexities, and a lot of investors who want to participate but don’t have a trusted advisor to give them good information. There are businesses to be built here.

There are accounts to be managed where – if you can figure out what it means to be a digital asset advisor and advise clients on what sort of digital assets they should buy and how to host those assets whether in a self-directed account or a hardware-based wallet – that is something you can charge for. There is real demand for that service right now.

This interview has been edited and condensed.

- Jameson Berkow, Globe Advisor Reporter

Must-reads from Globe Advisor this week

How to play the impact of rising interest rates on markets

With both the Bank of Canada and the U.S. Federal Reserve Board raising interest rates in March and the U.S. central bank setting an even more hawkish tone, there’s no denying that rates are going up. The question for investors is how this change in the long-standing interest rate trend will affect markets and how should they respond. Terry Cain speaks to three investment experts to get their sector and stock picks in this environment, and how fast they think interest rates will rise.

Oversight on Ontario life insurance agents intensifies

The Financial Services Regulatory Authority of Ontario (FSRA) says it plans to step up conduct reviews for life insurance agents after it discovered 105 contraventions of the Insurance Act and 334 instances of agents not following industry best practices in an investigation. The move comes as the provincial agency also prepares to announce a list of authorized credentials and credentialling organizations for the use of the financial planner and financial advisor titles. Jameson Berkow reports on the criticism that FSRA is facing and how industry groups feel about the new titling regime.

Arbitrage funds benefit from strong M&A and SPAC tailwinds

Booming merger-and-acquisition activity and bargains among special-purpose acquisition companies (SPACs) are fuelling profitable, low-risk arbitrage plays for investment funds focused on this space. Shirley Won speaks to three Canadian alternative fund managers about their merger arbitrage and SPAC arbitrage strategies in an environment hot for deals and how they differ.

What the Liberal-NDP pact could mean for tax changes in the budget

Advisors are fielding investor questions on potential tax changes in the upcoming federal budget as the Liberal government looks for ways to pay for billions in promised spending – including costs that come with its recent parliamentary co-operation agreement with the NDP. Brenda Bouw looks at possible changes like an anti-flipping tax or an increase in the capital gains inclusion rate and how this could impact clients.

Also see:

How advisors can help gig economy workers avoid costly missteps this tax season

How to maximize the impact of client donations to Ukraine

How women small business owners can fund their retirement without taking on debt

Fund houses buy up ‘alts’ specialists to move beyond equities and bonds

Funds drive surge in end-of-quarter rallies, research suggests

What you and your clients need to know

Worried about retiring in times of high inflation and interest rates?

While high inflation and rising interest rates aren’t great news for retirees or those approaching retirement, there’s actually less to worry about in today’s economy than one might think. Looking back in history when inflation regularly hit double digits and the economy suffered by other blows, experts say retirement rules were developed to withstand those shocks. Ian McGugan digs deeper on what other economic indicators suggest.

Will new pension option provide more retirement security?

Ottawa passed legislation last year that allows people with defined-contribution and pooled registered pension plans to participate in variable payment life annuities, which will take some time to become available. The option will allow some retirees to exchange some or all of their retirement savings for a monthly income. Kelsey Rolfe reports on whether this gives retirees a reliable lifetime income and what are the pros and cons.

TSX-listed stocks that are overleveraged and overvalued

Looking at companies that appear overleveraged and overvalued, along with shrinking earnings, Ian Tam of Morningstar Canada identifies 18 Canadian-listed stocks that investors should check whether they belong in their portfolios. The stocks are ranked based on metrics such as debt-to-equity and cash flow to debt ratios, along with their latest earnings surprise.

– Compiled by Globe Advisor staff

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