Most wealth managers look the other way as clients bet on cryptos

Advisers remain sceptical in the main about bitcoin and similar assets
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Thomas Perfumo makes no apologies for criticising wealth managers who won’t consider cryptocurrencies on the grounds that they don’t understand them — or their valuations.

“If you don’t understand something don’t invest in it, that’s true,” says the strategy head at Kraken, a low-cost US cryptocurrency exchange which operates around the world, including the UK. “But do your homework. ‘I don’t understand it’ — it isn’t enough just to say that.”

Perfumo, himself an early investor in cryptocurrencies, says wealth managers must see that there is “a consumer-led revolution” taking place with investors tired of low- and zero-interest bank deposits on the hunt for returns. With fears of inflation re-emerging, he says “crypto is a life raft”.

But it’s an argument that cuts little ice with most wealth managers. Few put their clients into cryptocurrencies or encourage them to commit any share of their core portfolio to these volatile markets. Clients who insist on going ahead anyway are advised to take a punt on their own, essentially out of sight of their managers.

“We have core investments and we have speculative investments,” says David Bailin, chief investment officer at Citigroup’s private bank. “If you want to invest in tulips or bitcoin with a small percentage of your speculative portfolio I have no issues with that.”

Ed Smith, asset manager at Rathbone, takes a slightly more sympathetic view, but the conclusion is the same. “We certainly have a lot of questions about crypto,” he says. “Some people see crypto as a store of value against inflation in the same way as gold has been for many decades.”

But he warns that central banks won’t want private competition in currency any more than in the 19th century, when they squeezed out unregulated privately issued coins and bills. “We think digital products are the future, but we don’t think they will be cryptocurrencies.”

In the UK, the authorities have banned the sale of crypto derivatives to retail investors. But investors can buy in the spot market and purchase crypto-related assets, such as shares in listed crypto exchanges.

Perfumo says wealth managers’ views can change under “pressure from clients” and more effective marketing from crypto-linked companies. But still he cautions: “I don’t encourage anybody to bet the house on crypto.” For those who invested early, crypto accounts for a big share of their net wealth — for him, more than 90 per cent, he says. “But for new investors 10-20 per cent is enough. It depends on each individual’s comfort level.”

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This article has been amended since publication to correct the spelling of Thomas Perfumo’s name.

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