Eaglebrook CEO: Advisors the ‘Lowest-Hanging Fruit’ for Crypto Market

Volatility concerns and lack of education are keeping a large majority of financial advisors away from investing in crypto, said Eaglebrook Advisors CEO, Christopher King.

Eaglebrook, one of the largest crypto-focused separately managed account platforms, is launching a crypto educational platform for advisors as a way to inform them about the emerging $2 trillion asset class, the firm announced Thursday. 

The company had been offering informal research and education since its launch in November 2020, King noted. But Eaglebrook has spent the last six months or so creating what it calls Eaglebrook IQ, an offering he said advisors and the C-suites of multi-billion-dollar wealth management firms were asking for.  

About 95% of the advisor market has not yet invested in bitcoin or other crypto assets, King told Blockworks, presenting a large opportunity for increased allocation to the emerging asset class in the years ahead.

“The biggest elephant in the room and the lowest-hanging fruit for the crypto market is the $30 trillion wealth management market, which I think a lot of the market ignores,” he said. “[People] kind of view it as either retail or institutional, but everyone ignores the market in between, which is arguably larger than those two.”

The new offering

Eaglebrook IQ is available for free to more than 2,000 financial advisors across the United States, the firm noted.

“Advisors who are educated on digital assets are more likely to engage confidently with clients on this emerging asset class,” Nick Gerace, senior vice president of investments at Dynasty Financial Partners, said in a statement. “Interest in crypto investing has been on the rise and providing necessary education to our advisors has been incredibly helpful.”

The offering includes a two-hour training program detailing the merits and risks of bitcoin, ether and other digital assets, as well as weekly market commentary and research reports on topics such as decentralized finance, credit markets, and layer-1 and layer-2 protocols.

The firm also offers materials that advisors can send to clients who may decide to allocate a portion of their portfolio to Eaglebrook’s crypto SMAs. 

“You can kind of go as high-level and crypto 101 with our training program and as deep as the DeFi market, lending protocols, total value locked and all that stuff,” King said. “It’s really important for advisors to have these education tools…readily available within one platform where they can become educated and allocate to the market in a secure, compliant and basically seamless way.” 

The advisor shift to crypto

Eaglebrook connects with advisors in two ways, King noted. 

While the firm works with some advisors that end up onboarding a portion of their clients, Eaglebrook has also begun connecting with the investment and operations teams of multi-billion-dollar registered investment advisers (RIAs) to add its crypto SMAs to their model portfolios.

This could include adding a 4% position into a custom multi-asset diversified crypto SMA across 1,500 client accounts, King offered as an example.

Clients demanding access to crypto through their advisers are forcing the leaders of some firms to at least consider moving into the space, King explained. A majority of advisors allocating to the asset class for the first time are seeking access to both bitcoin and Ethereum, he added.

“Making sure that they’re educated and have a way to move clients into the market in a secure way is really going to be important if they want to basically protect their practices and businesses over the next five to 10 years.”.

Crypto SMAs versus ETFs

More than 500 financial advisors are actively allocating to Eaglebrook’s crypto SMAs, the firm reported as King said some seeking the tax-loss harvesting and portfolio customization that the wrapper provides.   

But the investment options for investors seeking exposure to crypto assets is increasing. Most recently, the US Securities and Exchange Commission allowed ETFs investing in bitcoin futures contracts to come to market. 

The ProShares Bitcoin Strategy ETF (BITO), the first and largest, has grown to $1.4 billion assets under management since launching one month ago. Three similar offerings by fund managers Valkyrie Investments, VanEck and Global X are also now available. 

King said that the money flowing into those funds is coming from self-directed investors rather than financial advisors and RIAs. Advisors are staying away from the products due to roll costs and contango – a situation where the futures price of a commodity is higher than the spot price, he explained.

“It doesn’t matter what the price of the futures-based ETF is; it could be free from a management fee perspective, but you’re paying 15% to 20% annually because of the roll and contango,” he said. “That is a major cost versus what we provide, which is direct ownership, which means there is minimal tracking error.”

Dave Nadig, director of research and CIO of ETF Trends and ETF Database, argued that the breakdown of what kinds of investors are putting money into the bitcoin futures ETFs is not yet known. He added that webinars related to BITO have had high advisor attendance. 

“The point remains that BITO is primarily going to be a trading tool for individuals and institutions looking for quick and easy exposure on a regulated exchange, or for folks using options strategies,” Nadig told Blockworks. “The VanEck offering is potentially more interesting for advisors, because of the tax treatment and lower expense ratio.”

The SEC has not yet approved an ETF in the US that would invest in bitcoin or other crypto assets directly, most recently rejecting a proposal from VanEck.

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