Why Advisors Should Care About Crypto

September 10, 2021

Tyrone Ross, Jr.​Tyrone Ross Jr. is an investment advisor and the CEO of Onramp Invest, a technology company providing access to cryptoassets for registered investment advisors. He was recognized by WealthManagement.com as a top 10 advisor set to change the industry in 2019, and made Investment News’s 40 Under 40 that same year.

ETF Report sat down with Ross to discuss why advisors should care about crypto and what it means for their clients.

ETF.com: Why should advisors care about crypto at all?

Tyrone Ross Jr.: They should care about it because their clients own it—and clients are seeing it everywhere, and they're going to have questions. Who cares if you think it's tulips or not? You should be conversant.

Also, they should care because it’s going to completely revolutionize our business as advisors. Our business is going to look a lot different in the future due to crypto.

ETF.com: Could you get into that a little bit more? How do you think the advisor space is going to change because of crypto?

Ross: For one, in decentralized finance (DeFi) right now, you can get yields ranging from 4% to 400%, compared to a 0.03% yield on client cash right now at Schwab. There's over $1 trillion of advisor-managed client cash sitting, earning nothing. We hear the frustration about that from advisors over and over.

How do you look at these yields and not be lacking in fiduciary responsibility if you know you can get them relatively safely? There’s some risk involved, but you should look into that and understand the counterparty risk.

There are a million reasons why financial advisors should care, but decentralization and self-custody [are 2 others]. How investors custody their assets and hold them is changing. And then you look at how portfolios are going to change as well, because I may have NFTs [nonfungible tokens], I may have stablecoins, I may have bitcoin, I may have all these different things. Advisors really need to understand crypto, because it's not going away.

ETF.com: How should people view an investmet in crypto? Is it like investing in technology, like investing in gold or something completely different?

Ross: I'm not in the camp that bitcoin is digital gold. I think it can be; I think it has some of those properties. But right now, if you’re investing in crypto, you’re investing in the power of networks, the power of community and the future of finance.

I’d look at it as more of a venture investment, because it’s still so early. A lot of people would benefit if they look at it as investing in technology and networks as opposed to digital gold.

ETF.com: Given crypto’s risk profile, what type of investor should have these types of assets in their portfolio? Is it the type that’s really comfortable with high risk, early-stage investments?

Ross: Yes. Most advisors and probably most retail investors shouldn’t be investing in crypto right now because it's an incredibly obtuse thing to understand, from the buying to the selling, to the storage, to the rules and regulations, the lack of investor protections and what have you.

The folks who should be investing in crypto now are those who can stomach a lot of risk. That’s why I tell advisors to take their client back to the “core four” if they mention crypto: risk tolerance; investor policy statement; financial plan; and estate planning.

What you have to be able to do if you want to invest in crypto is stomach the volatility—up 90%, down 30%—you've got to be able to deal with that.

Look, investing in Robinhood is a risk. There are different types of risk, but there are so many more risks in crypto than the things that you’d look at through a traditional investment lens.

To invest in crypto, 1) you should have a long time horizon; 2) be able to stomach a lot of volatility; 3) have some bare minimum amount of tech savviness to at least be able to navigate doing things on a phone and on an app. You also need to have the discipline to dollar cost average and rebalance frequently.

ETF.com: What type of crypto assets should advisors and investors focus on? Just the big ones like bitcoin and ether? Or maybe the index route is the way to go?

Ross: I'm a purist. The co-founder of my firm Onramp Invest, Eric Ervin, ran Reality Shares. We have a lot of ETF industry people who are either investors in Onramp or associated with us. I know them all, and I understand where things are with an ETF. I get it.

I've always been pro-ETF, but because I'm such a purist, I think putting something like crypto in an ETF is just weird to me.

You know what would be really cool? To have a bitcoin allocation as part of an ESG ETF. I'd love that! That would be phenomenal. But a pure bitcoin ETF? No. I'm very much a purist because I just believe in holding the underlying; I actually want to buy it directly.

But that’s just me, because I'm a purist and I'm a bad proxy. A lot of financial advisors are going to want an ETF. They don't care about alpha; they just want exposure. They want to satisfy the clients' needs. They can do that through active management or they can do that through some type of passive fund.

ETF.com: As exciting as the crypto space is, it can also be very overwhelming. What’s an advisor or an investor to do if they want to get involved but don’t necessarily have the time to follow the day-to-day developments in the space?

Ross: There's this wonderful resource that we built called Onramp Academy that helps advisors get educated on all things crypto. But outside of that, the traditional resources that advisors rely on have failed: Barron's, Morningstar, Wall Street Journal, CNBC. They're getting their act together, but the resources for advisors aren't there, which is why we created the Academy.

I will say Twitter is a great resource, even though it can be a dumpster fire at times. The smartest minds are there. But to follow the price action 24/7/365 is not good for most advisors, and they shouldn't be doing that.

ETF.com: Has the SEC offered any guidance for advisors on crypto?

Ross: Yes, there's plenty of guidance from the SEC. Just to recap it really quick: The IRS says bitcoin is property; the SEC says bitcoin and ether are nonsecurities; and the CFTC says, for their purposes, bitcoin is a commodity.

The SEC has given three updates: one in February, one in December and one in March. The Feb. 27 risk alert gave advisors everything—all of the guidelines on custody, pricing, valuation methodologies, policies/procedures, books/records, etc. They gave you the full blueprint.

I interviewed SEC Commissioner Hester Peirce and she said that the SEC wants advisors to do one thing: be advisors, do your job and just get smart on this. You have everything you need, all of the guidance you need. Just do your job.

It would be wonderful if the SEC and the CFTC got together and gave unified guidance, especially on bitcoin. We all would love that; that would be great for RIAs especially.

One small caveat here that's very important: If I’m a hybrid RIA, I’m a registered rep; I have a Series 7; I sell securities. Bitcoin and ether are not securities. That scares me. So, I don't want to buy bitcoin and ether because the SEC says those aren’t securities and I may not have a Series 3. In that case, I want an ETF, because it'd be a ’40 Act product, so I'll be safe.

A lot of it has to do with what type of an advisor you are. But no matter who you are—RIA, hybrid or wirehouse—the SEC has given all the guidance that advisors need to do their job.

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