There were few definitive judgments from the market following the US presidential election, but surely going long on crypto is one of them. The incoming administration is likely to see crypto investing take off like never before, which offers both risks and opportunities for traditional wealth managers.
The aggregate result of this election cycle, not least the US presidential contest, is bullish for the crypto industry in the US and by extension the world. The price of Bitcoin and other smaller tokens all jumped as a Trump win became apparent—mostly as investors priced in a more lenient regulatory environment and less hostile narrative in Washington. Besides the price increases, what should wealth managers anticipate as a result of the change in government?
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- Greater crypto demand and penetration: The run up in Bitcoin prices alone is likely to trigger greater retail investor demand, but any relaxation of regulation is also likely to make it easier for retail investors in the US to get a hold of these assets.
- More crypto innovation and fund launches: With the new administration, there is likely to be a less combative Securities and Exchange Commission, which had stalled the launch of many (although not all) crypto investment vehicles, such as crypto ETFs. Expect many more launches with more variety in the types of investment vehicles or financial products—with many more types of cryptocurrencies—once the new administration is in place.
- More crypto fraud: The industry has always been prone to fraud. A new landscape involving reduced regulation, a proliferation of lightly vetted products and funds, and larger amounts of money is sure to draw in yet more criminals.
- Millennials finally win: Crypto investing is not uniform across populations or the world, but this is a win for the much-maligned millennial investor. Both globally and in the US, millennials have greater exposure to crypto in general, meaning the spike in crypto prices will be a fillip to their portfolios more so than any other cohort—a rare occurrence.
The cryptocurrency industry is about to see a big expansion at all levels. This represents both a significant opportunity as well as a risk, not least because no one is really using crypto as a method of payment despite such assets ostensibly being currencies.
As such, all wealth managers need to get better at understanding and vetting the evolving world of cryptocurrencies as a source of new wealthy clients, as investments for their own clients, as well as a potential threat to client wealth. All are about to increase significantly.
Andrew Haslip, is the Head of Content for Wealth Management and Asia-Pacific (FS) at GlobalData
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