Read Time: 5 Minutes
Voice of the Investor
Inside the Mind of a Crypto Investor
Key Takeaways:
- 60% of crypto investors work with financial advisors. Our Voice of the Investor study provides key insights to serving them better.
- Crypto investors seem to be excited, engaged, and eager to learn.
- Advisors should understand whether their clients are “casual” and “committed” crypto investors and respond accordingly.
By 2027, total alternative investments under management are projected to reach $17.2 trillion—a four-fold increase since 2010.
Cryptocurrency is a consistent headliner among alternative investments—both for being an opportunity for quick and dramatic gains, and for its vulnerabilities. Though cryptocurrency is still finding its footing with regulations and academically-substantiated valuation metrics, it continues to have sticking power with investors.
So who is the cryptocurrency investor? Reaching them—and those interested in alternative investments in general—is an opportunity for the modern advisor. But to serve them, advisors must understand them. This profile highlights insights from Morningstar’s 2023 Voice of the Investor study, which provides a pulse on the wide-ranging attitudes, behaviors, and preferences of investors across the United States.
Demographics of the Crypto Investor
The Voice of the Investor study is based on 2,003 total responses collected through an online survey. The sample used was representative of the U.S. census, and respondents qualified for the survey by being 18+, living in the US, and not currently employed as a financial advisor. Participants were recruited from a nationwide panel that provides strong representation across gender, geography, age, types of employment, ethnicity, household income, and investable assets. Below are the demographics of crypto investors according to the Voice of the Investor study.
Crypto investors span generations, genders, and races.
Though the limitations of the study should be noted – there were 2,003 total responses and 293 (14.6%) of them had assets in cryptocurrency—and there may be confounding variables at play to explain these demographic breakdowns, these statistics offer a way for financial advisors to challenge their assumptions about who might be interested in alternative assets.
Go Deeper
Morningstar analysts found that $250 billion in equities and funds have crypto exposure—intentional or not. This report identifies managed investments and common stocks with the highest digital-asset exposure.
The Psychology of the Crypto Investor
When exploring why investors fire their advisors, Morningstar researchers found that the decision is more complicated than being unhappy with returns—factors such as quality of relationship with an advisor and quality of communication were also key.
While every investor is unique, the following statistics suggest a psychological profile that could help advisors build strong relationships with crypto investors.
- Crypto investors are excited. When asked what factors started them on their investing journey, 46% of those with some amount of investable assets in cryptocurrency indicated “I find investing exciting” (That number plummets to 18% when looking at those without investable assets in cryptocurrency.)
- Crypto investors are engaged. They tend to check their investments, on average, more than 2x those who do not have investable assets in cryptocurrency.
- Crypto investors are eager to learn. They cite more factors of influence that started them on their investing journey in general, and are more likely to give credit to the behavior of fellow investors, online advertisements, and social media influencers for influencing their investing behaviors. And once they start investing, they are more likely to find many sources of information valuable.
These statistics suggest that crypto investors are likely not the “set it and forget it” types, which makes sense given the innate risk of investing in a less regulated space. To serve this client, advisors should be ready to respond to questions with an accurate and up-to-date perspective, which means they will need data on all the investments that make up their clients’ complex portfolios – even those investments not directly held with the advisor.
Expertise in other alternative investments will also add value. Perhaps unsurprisingly, the crypto investor is more likely to view emerging asset classes as good investments for the future, with 70% agreeing with the statement, “I believe people who are not investing in emerging asset classes are going to miss out on large future returns on their investments.” This provides an opportunity for advisors to differentiate themselves by introducing cryptocurrency investors to other emerging asset classes and helping them manage risk across multiple assets. By doing this, advisors can support investors in creating robust investment plans that account for an expanding portfolio.
Crypto investors have a positive view on emerging asset classes.
Go Deeper
Advisors can get a competitive advantage by bringing together data and insights on structured products, digital assets, and other emerging categories—as well as built-in educational modules on these topics with Advisor Workstation.
Taking Action with the Crypto Investor
Not only is the crypto investor poised for action, but they are also eager for guidance.
When thinking about their best investment strategies, cryptocurrency investors prioritize “finding the best advisor to meet their unique needs” and “maximizing their returns and minimize losses on their investments” almost equally. In fact, 60% of investors with assets in cryptocurrency work with financial advisors.
Compared to investors who don’t invest in cryptocurrency, those with some assets in cryptocurrency are far more comfortable making investment decisions. And those with more than 10% of their investable assets in cryptocurrency are more likely to take bigger risks as the market swings drastically in either a positive or negative direction. Given that 53% of clients who use financial advisors tend to rely on them for reallocating assets, it follows that financial professionals may find crypto investors to be receptive clients, if they are able to effectively communicate the trade-offs of different options and tailor their recommendations to the crypto investor’s goals.
Crypto investors are more comfortable making investment decisions than non-crypto investors.
When considering how to serve the crypto investor, however, financial advisors should understand whether they are “casual” or “committed.” The Voice of the Investor study broke down the crypto investor into 2 sub-types:
- Casual: those with 1-9% of investable assets in cryptocurrency
- Committed: those with 10%+ of investable assets in cryptocurrency.
There are significant differences between the two subtypes. The “casual” crypto investor has a much higher average household income – almost triple that of the “committed” crypto investor, and also higher than those who didn’t invest in cryptocurrency at all. They also had a more diversified portfolio, with assets spread throughout retirement accounts, IRAs, individual stocks, mutual funds, as well as cryptocurrency.
"Casual" crypto investors have the highest household incomes and most diversified portfolios.
The “committed” crypto investor, on the other hand, has an average lower household income, but is far more aggressive in their investing strategy, with an average of $45K and a median of $31,150 in cryptocurrency compared to the “casual” crypto investor, who has an average of $15K in cryptocurrency. They also tend to have less years of investing experience overall.
“Casual” crypto investors are more experienced than “committed” crypto investors.
In an industry where personalization is key, financial advisors may find these trends useful in their approach to current clients or attracting new prospects.
- For the “casual” crypto investor, advisors could demonstrate value by offering diversification across traditional and alternative asset classes, with cryptocurrency being just one of many avenues.
- For the “committed” crypto investor, who has a higher risk tolerance but not as much experience, advisors can position themselves as a coach who can provide the expertise necessary for crypto investors to meet their goals.
Go Deeper
79% of asset managers are exploring crypto-based and decentralized finance products as part of their changing product suite. Listen to our on-demand webinar on alternative investments to get the tools to future-proof your practice.
Conclusion
Though serving clients interested in cryptocurrency and alternative investments provides opportunities for advisors, there are challenges to be faced as well. Pre-trade, there is limited (or no) data analytics available for portfolio construction or portfolio comparison, to illustrate decision trade-offs. This can make it difficult for wealth managers to evaluate and select the best investment opportunities for their clients.
In addition, the subscription lifecycle process for alternative investments can be more complex and time-consuming due to the unique characteristics of these investments, the legal and regulatory requirements, and the fund-specific requirements.
The post-trade lifecycle management process for alternative investments may face obstacles due to the unique characteristics of these investments, including their illiquidity, complexity, limited transparency, and diverse investment strategies.
Despite these difficulties, on average, advisors are now allocating 10-12% of their AUM to alternative investments. For Wirehouse advisors, that is closer to 20% of their AUM. Investors seek personalization; advisors seek differentiation. Alternative investments can serve both, but advisors will need data, research, and tools to better manage the alternative investment’s full lifecycle.
Meet the moment for today's investors with Morningstar's Evolving Investor Insights - educational resources on new investment types, growing investment platforms, and shifting client priorities to grow your practice and deepen current relationships.