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Most advisors aren’t comfortable with crypto and it’s unclear whether Securities and Exchange Commission oversight would accelerate the adoption of digital assets, according to the results of a survey by Ignites Research.

In fact, 71% of advisors responding to the Ignites Research survey said they don’t know enough about digital assets or wouldn’t advise clients to invest in them. And 60% of respondents said that even if the SEC started to regulate crypto, it wouldn’t change much to their allocation approach.

Following the implosion of FTX crypto exchanges, advisors we interviewed identified many risks associated with working with digital assets. Topping the list of advisers’ concerns, however, was the unpredictable regulatory landscape. The volatility of the assets themselves and the instability of crypto exchanges were the next two main risks identified by advisors.

A total of 141 advisors responded to the survey, which Ignites Research conducted between November 18 and 29.

Who’s the boss?

Calls for regulation of the asset class have reached a roar, but debate is brewing over whether those rules should be handled by the Commodity Futures Trading Commission or the SEC.

FTX founder and former CEO Sam Bankman-Fried, who is now at the center of the crypto meltdown, has called for CFTC regulation of digital asset markets. Currently, the CFTC governs Bitcoin futures. More reporting to the CFTC would have been extremely helpful here on international rigor,” Bankman-Fried told Axios in a late November phone interview.

SEC Chairman Gary Gensler, meanwhile, argued that existing securities laws should govern investment contracts containing digital assets. In September, Gensler announced plans to open the Office of Crypto Assets as part of the Corporate Finance Division’s Disclosure Review Program.

If the SEC were to regulate the asset class, it would open the door to mutual funds and ETFs holding cryptocurrencies directly. Currently, US-registered products can only offer exposure by investing in futures or companies related to digital assets.

Some industry players have touted their stability following the collapse of crypto exchanges. For example, Fidelity, which in September introduced the ability for retail investors to open digital asset accounts on its platform, said recent events in the digital asset industry have further underscored the importance standards and safeguards in space.

Advisors look askance

However, it is not clear that adding digital asset regulation will do much to change advisor behavior. While the majority of advisors we surveyed identified the unclear cryptocurrency regulatory landscape as the top risk of using digital assets in portfolios, 60% said digital asset regulation is not would not change their allocations (or lack thereof).

As of now, their approach to crypto investing largely means staying away.

Only 29% of advisors say they are willing to provide outside crypto investment advice to clients who request it. The rest said they don’t know enough about crypto to properly advise their clients on digital assets, or generally don’t recommend investing in the asset class.

Of the approximately 40% of advisors we surveyed who said they have clients investing in digital assets, only 5% facilitate investments or are otherwise involved in those clients’ decisions regarding crypto holdings.

For the 35% of respondents who said a more stable regulatory environment could prompt them to increase their allocations to crypto, nearly three-quarters said they would look to packaged products like mutual funds or AND F. Less than a quarter of the group said it would provide direct access.

Six percent of advisers surveyed said that if the SEC were to regulate digital assets, they would reduce their allocations.

The spillover effect

Despite the perception that cryptocurrencies exist in a decentralized financial landscape, the repercussions of the fall of FTX have reverberated on Wall Street for weeks.

In fact, the crypto space is highly concentrated, SEC Commissioner Jaime Lizrraga noted last month. This is especially true for crypto platforms, including FTX, which offer a range of services such as trading, custody, borrowing and lending, he said.

Cryptocurrency lender BlockFi, which said it has significant exposure to FTX, filed for bankruptcy just weeks after FTX collapsed. Voyager Digital, whose assets FTX owned, is reportedly looking for a new parent.

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