Cryptocurrencies such as Bitcoin (BTC) are increasingly used by financial advisors as a hedge against inflation, underscoring the dramatic shift in institutional sentiment toward digital assets.
The Bitwise / ETF Trends 2021 Benchmark Survey disclosed that 9.4% of financial advisers committed to cryptocurrencies in 2020 – a 49% increase from the previous year. Of the advisers not currently allocating to crypto, 17% said they will ‘definitely’ or ‘likely’ get exposure in 2021.
Advisors buy cryptocurrencies for many reasons, the most important of which is its potential protection against inflation. As Bitwise noted, 25% of advisers cited inflation hedging as one of the most attractive features of the asset class. That’s an increase of just 9% the year before.
The report said:
“This year’s survey saw a surge in the number of advisors who highlighted crypto’s” high potential returns “and its role in” inflation hedging “as key attractive features of the asset class.”
A total of 994 consultants took part in the study, up from 415 the year before. Independent RIAs represented 45% of the respondents, followed by independent broker-dealers (25%), financial planners (19%), and wire house representatives (11%).
Bitcoin appears to be benefiting from this from the systematic devaluation of the dollar as more investors abandon the traditional financial system. The dollar’s free fall is expected to continue this year as the upcoming Biden administration prepares a multi-trillion-dollar stimulus plan and effectively picks up where Donald Trump left off.
Although institutions currently represent a small fraction of all Bitcoin holdings, their impact on the market is increasing. Goldman Sachs’ director Jeff Currie believes that institutional adoption has put Bitcoin on the path to maturity but noted that more adoption is needed to stabilize the asset class.
Bitwise’s assets under management rose to $ 500 million in December, a fivefold increase from just two months earlier. The company’s record inflow reflects new demand from investment professionals, including advisors, hedge funds and corporations.