Winklevoss Twins call on advisers to get on Bitcoin bandwagon but they're not budging

Lack of understanding, performance history and steep headline risk are all reasons keeping investors on the sidelines

Advisers aren't buying what the Winklevoss brothers, known for their initial role in the rise of Facebook, consider the next big thing for financial services.

Cameron and Tyler Winklevoss' new bitcoin exchange platform, Gemini, will officially open on Oct. 8, where advisers and consumers will link their accounts and be able to purchase the digital currency as an investment.

The brothers said advisers are probably hesitant to embrace bitcoin because of a lack of knowledge.

"Bitcoin is not the easiest thing to understand immediately," Tyler said in a recent interview. "[Gemini] is a good way to kickstart an education process in a space that is super significant."

"All of Wall Street is talking about it, all the best VC firms are invested or looking at it," he continued. "There are way too many indicators on why people should pay attention and get involved."

But advisers aren't budging.

"You have this disparity between it being an investment vehicle and a currency," said Scott Bell, chief executive of Gross Domestic Product Inc. "If it is an investment, you want it to go up in value. But for bitcoin to work as currency, you need it to be stable."


Ross Gerber, president and chief executive of Gerber Kawasaki Wealth and Investment Management, said he doesn't think bitcoin is safe, which is why he'd never consider it for his clients.

"It is a wonderful currency for illegal activity and no viable function for legal activity," Mr. Gerber said, citing instances in which bitcoin made its way into headlines for all the wrong reasons. A bitcoin exchange called Mount Gox was launched in July 2010 and despite being an industry leader in the currency, closed its website and admitted to losing 850,000 bitcoins by February 2014, according to TechCrunch. That's equivalent to about $63.6 million.

"I don't know if the trust is there yet," said Brad Sherman, president of Sherman Wealth Management.

Sophie Louvel Schmitt, a senior analyst with research firm Aite Group, added that bitcoin is not mature enough for advisers to plug it into client portfolios.

"Advisers tend to be pretty conservative," she said. "There's a small percentage that really embrace alternative investments and know how to sell them, but most advisers tend to shy away and choose liquid investments."

An Aite Group study on what investment products advisers choose found that alternative investments represented only 5% of the products the 338 advisers surveyed chose in 2014.

"They want to make sure portfolios are not going to be too volatile," Ms. Schmitt said. "There needs to be a lot of education for advisers to get them comfortable with this type of investments for wealth management clients."

There is promise, many advisers said, in blockchain, the underlying technology of bitcoin that acts as a digital ledger.

April Rudin, founder of the marketing firm Rudin Group, said understanding Blockchain will help advisers understand Bitcoin.

"It is really a transparent system and it is facilitated by the technology," Ms. Rudin said. "Advisers can do themselves a favor by understanding it is a public ledger and that they can see all confirmed transactions as they occur."

That's why Nasdaq plans to tap into the technology.

Still, it will take time before advisers choose to jump in, especially since their clients may not be that interested in it themselves.

"The average American right now is not using bitcoin, probably hasn't even heard of bitcoin," Mr. Bell said. "It's like a brand new fund. Why would you buy it unless there was something absolutely compelling about it?"

"That isn't the case here."

By Allessandro Malito

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss.

Gerber Kawasaki, 2716 Ocean Park Blvd. #2022 Santa Monica, CA 90405. Contact us at (310) 441-9393.
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