Next generation is cloud-based but needs proper advice over “out of control” asset allocation, says CEO
Skeptical advisors who refuse to look at crypto assets risk failing to connect with the up-and-coming generation of investors.
While the hype around bitcoin has subsided slightly - the price has hovered around the $7,000 range the past few weeks - the buzz around web 3.0 is constant. Evangelists will tell you anything from cryptocurrencies to the Blockchain to robotics and AI are the next wave that investors have to own or face being left behind.
Thematic ETFs, therefore, abound but there’s no doubt the regulators remain unconvinced. In February, the Ontario Securities Commission refused to issue a receipt for a prospectus filing made by 3iQ Corp in respect of The Bitcoin Fund, declaring that it was simply too early for bitcoin to be considered an appropriate asset for public consumption and that the potential for abuse was high in a market that’s difficult to monitor.
Fred Pye, CEO of 3iQ, believes his fund will be available sooner rather than later and that bitcoin, despite the increasing number of competitors, remains the leading digital currency.
Speaking at the ETF Summit in Toronto yesterday, Pye laid out his belief in the cryptocurrency and the potential of blockchain to reach the level of the internet over the next 20-25 years. He told investors to keep cryptocurrency exposure in a separate part of their portfolio compared to “growth” areas like robotics and autonomous vehicles.
However, he warned advisors looking the other way that they risk missing the boat when it comes to Canada’s young minds.
He said: “The next generation of clients that are 35 and under, if you are not prepared to look at crypto assets and the digital asset space, you are not going to be able to attract those clients because they want to be able to do everything online.
“But their asset allocation is way out of control and is wrong. They need financial advisors to wheel them back. Advisors need to show them that crypto assets are less than between -0.15 and +0.15 correlated to every other asset class we look at.
“As a standard hedge fund manager, you are looking for the ideal, perfect non-correlated asset class, which is this!”
Pye is unequivocal that digital assets are the future and pointed to power, bandwidth and cloud storage as the usage areas that are skyrocketing.
He said: “Who used more lumber, heat or paper last year than this year? Nobody did. You have to start looking at digital commodities, digital assets and digital currencies.”
Martin Lalonde is president and portfolio manager at Rivemont, which manages the Rivemont Crypto Fund and is the only actively managed fund of its kind in Canada.
He recommended that investors have between 5-10% of their portfolio in cryptocurrency and agreed with Pye that it should be separate from the AI and Blockchain elements that he'd put in “the NASDAQ portion”.
He said: “The cryptocurrency space is very volatile right now, so what that means for the portfolio is we are looking for alpha.
“We think, in the future, that every portfolio of every investor will have a portion in crypto just because we think the value of those cryptocurrencies will go up in value.
“We advise between 5-10%, if they like it. We don’t promote it; we are waiting for them to talk to us about what kind of assets they like. But we think between 5-10% is something very smart to do, however, going above that there is strict oversight by the regulators.
“We are talking with the regulators almost every week about what we are doing and they don’t like it if someone has too big of a portion of his portfolio.”