Crypto has entered a new phase of its existence: It’s gone mainstream. As investors, that means we need to start asking different—and sometimes harder—questions.
Here’s what I mean.
For much of the past decade, crypto stayed at the fringes of the investment universe. It was a joke, or worse. Many in the traditional financial community assumed it would just go away. Others, being more open-minded, shrugged and said, “I don’t get it.”
Crypto was small enough, weird enough, and exotic enough that you could get away with that. As a professional investor, you could ignore crypto and be just fine.
Those days are over.
Crypto is now a $2 trillion industry that has elbowed its way into the mainstream. Last weekend, there were six—six!—crypto-focused Super Bowl ads. And if that’s not enough, consider:
- 55 of the 100 largest financial institutions in the world are now investing in crypto and blockchain;
- Coinbase, the largest crypto brokerage, has twice as many accounts as Charles Schwab;
- 5% of all venture capital investment in the U.S. last year went into crypto; and
- BlackRock has filed to launch a crypto-focused equity ETF.
Crypto pioneers may not like it, but you are no longer a renegade if you’re investing in crypto. You’re standing shoulder to shoulder with Ray Dalio, Stan Druckenmiller, and many more of the smartest investors in the world.
That’s a big deal. It means, if you’re a financial advisor, you can no longer ignore your clients’ questions about crypto; if you’re a pension trustee, you can no longer dismiss crypto as something only kids do.
Crypto isn’t too big to fail, exactly, but it is too big to ignore, and that’s a meaningful change.
But before we crypto pundits start stomping our feet and crowing, “See, we were right,” it’s worth pausing to note that this breakthrough is just one step of the journey.The reality is that some of our talking points are relatively thin.
- Yes, Coinbase has more accounts than Charles Schwab … but the average size of those accounts is much smaller.
- Yes, a majority of large financial institutions are investing in crypto … but the scale of those investments is limited.
- Yes, BlackRock is launching a crypto-focused equity ETF … but it has hundreds of ETFs on offer.
At Bitwise, each year we conduct a survey of financial advisors’ attitudes towards crypto, asking them how many are allocating to crypto in client accounts. It’s a big topic, since advisors control the majority of household wealth in America—some $5 trillion to $20 trillion. A wholesale shift of advisors into crypto could have a dramatic impact on the crypto market.
From one perspective, the data is very promising: The percentage of advisors allocating to crypto in client accounts has risen in each of the past four years, from 4% in 2018 to 6% in 2019, 9% in 2020, and 16% in 2021. An additional 25% of advisors said they plan to allocate to crypto in client accounts in 2022, meaning nearly half of advisors could have allocations by year end.
But underneath the surface, the scope of that allocation is limited: Among advisors with allocations, most are allocating for just a handful of clients; 59% have allocations for 5% of their clients or fewer.
If advisor allocations are really going to change the world, we’ll need advisors to allocate across most of their clientele. I think we’ll get there, but there is still work to do.
Can Crypto Go From 1 to 100?
The most challenging step of any technology’s journey is going from zero to one. New technologies are almost always met with skepticism and doubt and have to prove their staying power. It was true of the telephone, the personal computer, the internet, and more.
Crypto has gone from zero to one. There is now too much talent, too much money, and too many proof-of-concept demonstrations to imagine that crypto will simply disappear in the future.
What we don’t know yet is if it can go from 1 to 100.
Can crypto become not just an acceptable investment, but a necessary one? Can crypto applications go beyond proof-of-concept to impacting our day-to-day lives? Can crypto have an iPhone moment, where it becomes ubiquitous?
The exciting thing for investors is that the potential impact, if we really hit it, is enormous. It reminds me in many ways of the early days of the internet, before Hotmail took email mainstream. The internet was cool, and interesting, and weird, and had niche applications if you knew how to use them. But it hadn’t yet gone from 1 to 100.
Once it did, however … the world was never the same.
So for investors, it’s time to stop asking zero-to-one questions. No more worries about widespread government bans, or generalized custody limitations. Sure, we have work to do on those items, but we’re past total failure. Crypto is not going back to the fringes.
Now the questions that matter most are ones of scale and mass adoption. What’s the next big barrier to fall—and when could it happen? What new fields could crypto transform? And how could all of that change how we live, work, play … and invest?
Hard questions for sure, but finding the answers will be the next big adventure.
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