Crypto Integration Becomes Essential for Advisors, Driven by Institutional Allocations

In the latest edition of Crypto for Advisors, Ashton Chaffee, head of Securitize for Advisors, delved into the evolution of crypto investing for advisors, highlighting the tools and models available to integrate digital assets into traditional portfolios. Chaffee emphasized that the ability to offer digital assets has transitioned from a niche consideration to an essential component of client portfolios. This shift is driven by the increasing recognition of crypto as a fundamental part of investment strategies, with major institutions planning significant allocations to cryptocurrencies.

Chaffee noted that the rise of crypto model strategies provides a seamless way to integrate digital assets without reinventing traditional asset management principles. These strategies, often structured as Separately Managed Accounts (SMAs), offer expert management, diversification, direct ownership, and flexible approaches to align with varying client risk profiles. This approach allows advisors to bridge the gap between traditional portfolio management and the rapidly evolving crypto space, making it easier to navigate the complexities of digital asset management.

Chaffee also discussed the differences between passive and active crypto strategies. Passive crypto SMAs cater to long-term believers in the asset class, providing consistent exposure and reducing emotional decision-making. In contrast, active crypto SMAs allow professional managers to make real-time allocation decisions, capitalizing on market trends and mitigating risks. This flexibility ensures that portfolios remain aligned with broader investment objectives, making crypto model strategies a valuable tool for advisors.

In the Ask an Expert segment, Layne Nadeau from NVAL answered questions about liquidity and tax calculations for tokenized assets. Nadeau explained that tokenization can offer significantly enhanced liquidity through fractional ownership and 24/7 trading, reducing capital requirements and intermediaries. However, actual liquidity depends on active markets with buyers and sellers, and some tokenized assets may lack sufficient market depth. Nadeau also clarified that unrealized returns for tokenized assets follow the same calculation principles as traditional investments, but their 24/7 trading nature requires more frequent monitoring.

Nadeau further discussed the accounting and measurement of different types of tokenized investments at fair value. Fungible tokenized assets, such as cryptocurrencies, derive their fair value from market prices on active exchanges, with value changes impacting income statements. Non-fungible tokenized assets, like NFTs, require more complex valuation methodologies. Accounting providers generally offer independent valuation services to establish defensible fair values for tokenized assets, ensuring accurate and transparent reporting.

Overall, the integration of crypto into traditional portfolios is becoming increasingly important for advisors. Crypto model strategies provide a structured, professionally managed approach to accessing this newer asset class, aligning with traditional asset management principles while meeting client demand for innovative investment solutions. As the narrative around digital assets continues to shift, advisors who can offer these solutions will be better positioned to serve their clients in a future-focused manner.