Sarah Morton, the new editor of Crypto for Advisors, is here to curate timely, relevant, and thought-provoking content as well as answer pressing questions that clients ask. Sarah’s learning journey into the world of crypto started more than six years ago, and she now works daily with advisors, financial professionals, and various digital asset community players to understand their challenges in answering client questions related to investing in crypto and digital assets.
Digital assets (cryptocurrencies, tokens, smart contracts, and other digital representations of value) are of interest to current and next-generation investors. Just yesterday, BlackRock CEO Larry Fink suggested: “Bitcoin could revolutionize finance.” This amplifies the demand from investors and their financial advisors for guidance on how to think about investing in this emerging asset class.
Adam Blumberg, co-founder of Interaxis, a company dedicated to educating financial professionals about digital assets, shares the three most common questions advisors ask about digital asset investing:
Q: Is investing in digital assets secure? I’ve heard of people losing all their money.
A: It can be secure if you know how to hold the assets and do your homework regarding custody. Digital assets and crypto are based on self-custody, meaning I hold my own assets in my own wallet(s). However, we often use centralized custodians – such as an exchange – to hold assets for ourselves and clients, as they take on much of the technology’s heavy lifting. For both you and your clients, it’s important that you research the custodian to ensure they don’t commingle assets and are solvent.
Q: Do digital assets have real value?
A: Each crypto asset has its own value proposition and investment thesis. For example, bitcoin is often viewed as a hedge against inflation, government, and banks. Ether is used to run applications on the Ethereum network. Other tokens derive their value from cash flows. Advisors should understand some of the investment theses and value drivers of various crypto assets to properly evaluate them for client portfolios.
Q: What are the risks of investing in digital assets?
A: We’ve already talked a bit about custodial risk. Cryptocurrencies are also volatile, which poses allocation risks in client portfolios, especially with clients who may need liquidity. Many of the projects and protocols the tokens represent carry their own risks, which can be deeply technical and complicated to understand. We don’t expect advisors to evaluate all the risks on their own, and we’re seeing more models and services which help determine crypto-asset risks as they relate to client portfolios.
Crypto for Advisors is here to help financial advisors navigate the digital-asset landscape. Recent news adds to the complexity, such as a Coinbase study showing that over 50% of Fortune 100 companies have started crypto, blockchain, and Web3 projects. The SEC’s recent language concerning surveillance agreements and the Financial Services and Markets Act granted Royal Assent by King Charles, making crypto trading a regulated financial activity in the UK, are also important to consider.
The largest transfer of generational wealth is happening as Web3 emerges, and advisors have a significant opportunity to support today’s clients and meet the needs of the next generation of investors. Crypto for Advisors will share thought leadership from the industry, answer common and pressing questions from clients, and point to resources to better understand this rapidly evolving asset class.