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Whether it is rising or falling, bitcoin attracts a lot of attention: In 2021, 94% of financial advisors answered client inquiries about cryptocurrencies, according to a Bitwise and ETF Trends poll. According to the same survey, 47% of advisors had cryptocurrency assets in their personal portfolios. However, only 16% of advisors have cryptocurrency allocated in client accounts.
Even while investors are interested in holding cryptocurrency, advisors may seem reluctant to suggest the category of digital assets. Whether your adviser will assist you with your cryptocurrency investments will rely on how they feel about the future of cryptocurrencies, the resources they have at their disposal, as well as your risk tolerance and financial objectives.
In this article we explain why your advisor might be hesitant to suggest cryptocurrency, what questions to ask your advisor about cryptocurrency, and what to do if your advisor refuses to offer advice on investing in cryptocurrency.
Basics of Crypto Investment
In order to ask better questions and be more equipped to evaluate the answers, you should first comprehend the environment of cryptocurrency investing.
First, there are several ways to invest in the blockchain and cryptocurrency industries. Real digital currencies like bitcoin and ether are available for purchase, although you don’t need to buy them directly. Indirect exposure to cryptocurrencies is also possible through specific stocks, such as:
- Coinbase, a cryptocurrency trading and wallet service.
- The Block digital payments startup. Bitcoin trading is supported by Block’s Cash App
- Analytics firm MicroStrategy (MSTR ). The business’ balance sheet shows a significant bitcoin investment.
As an alternative, you might invest in exchange-traded products related to cryptocurrencies. Some cryptocurrency funds simply invest in crypto equities, whereas others track the value of various cryptocurrencies and/or derivatives contracts.
Why Some Financial Advisors May Be Wary of Cryptocurrency Recommendations
Sadly, for a number of reasons, your advisor could refrain from advising direct or indirect exposure to cryptocurrency. He or she might lack the knowledge or the time to keep up with the rapidly evolving crypto world. Or perhaps the risk profile of cryptocurrencies bothers your counsel. After all, advising a highly volatile asset might put advisors in awkward situations. Most of the time, clients will either be thrilled or furious. Both extremes are undesirable.
The pay of advisors is a different problem. The major brokerages do not (yet) support trading in cryptocurrencies. You might have to carry out the trades yourself if your advisor advises holding digital currency directly. Additionally, any generated crypto assets would be kept in a separate account from the advisor’s control.
In that case, your advisor’s compensation for providing cryptocurrency advice is either zero or negative. When you remove money to purchase cryptocurrency, your advisor’s annual income would decrease if they charge a percentage fee based on the amount of your account. Furthermore, commission-based advisors won’t make any money on those trades.
For adding crypto supervision to your service offering, your financial advisor most likely doesn’t want to charge less or even stay at the same rate.
Ask Your Current Financial Advisor These Questions About Crypto
The easiest approach to determine whether your financial advisor is willing to manage your crypto assets is to ask them questions. Start by asking general questions to gauge the response. If your advisor doesn’t end the conversation, then be more detailed. For instance:
* What do you think of cryptocurrency?
There are numerous potential solutions to this. Some financial experts compare trading cryptocurrencies to gambling. Others believe that during the next five to ten years, the value of bitcoin will soar.
* Can you describe how crypto works?
A knowledgeable advisor with experience in crypto should respond with a thorough explanation.
* What degree of cryptocurrency exposure would you advise?
Unless you want aggressive, high-risk investing, you should anticipate a single-digit percentage here.
* Which strategy for investing in cryptocurrencies is best?
Instead of having a single response, this question ought to spark a dialogue. If your advisor doesn’t already know you well, they’ll want to know more about your goals and the reasons you’re interested in investing in cryptocurrencies.
* Can you handle my cryptocurrency assets?
Advisors may manage your crypto holdings using technologies like HeightZero and Onramp Invest. They are referred to as TDAMPs, or turnkey digital asset management platforms. These are mostly intended for freelance cryptocurrency advisors. They can significantly speed up the advisory process.
* Describe the services you can provide in relation to investing in cryptocurrencies.
A pro-crypto advisor should inform you of your investment possibilities, provide a target exposure level for your crypto holdings, and explain how that level will effect your current exposure levels. Additionally, you want a financial advisor who is at ease recommending that you buy, sell, or hold cryptographic assets. The advisor should ideally be able to examine and handle your crypto assets directly if they have the necessary tools.
* Taxation on cryptocurrency transactions?
Your cryptocurrency transactions are taxed similarly to stocks in the US. Depending on how long you possessed the asset, you will either pay the short-term or long-term gains tax rate when you record a gain. Your advisor ought to advise you to carefully document all of your transactions. Working with someone who advises hiding your cryptocurrency trading activity is not something you want to do.
Should Your Advisor Not Suggest Crypto
You have two choices if your existing counsel won’t assist you with cryptocurrency. You are able to trade alone. You might work with a consultant for a short while who can teach you about cryptocurrencies and investing in them. Search for cryptocurrency consultants, advisors, professionals, or experts to locate these experts.
The second choice is to look for a new advisor with knowledge of cryptocurrencies. One of the best methods to find money managers who are pro-crypto is by using industry designations. The Certified Digital Asset Advisor (CDAA) and the Certificate in Blockchain and Digital Assets are two titles to be aware of (CBDA).
1. Certified Asset Advisors for Digital Assets
The curriculum for certification in bitcoin, ether, blockchain, crypto wallets and exchanges, as well as crypto legislation and compliance, consists of 12 hours. They must also maintain their education. Here, you can perform a CDAA search.
2. A certificate in digital assets and blockchain
The Digital Assets Council of Financial Professionals offers a program called “Certificate in Blockchain and Digital Assets” (DACFP). It’s for financial advisors who want to advise their clients on cryptocurrency investment methods. Holders of certificates are required to finish 11 learning courses and sign an ethical code each year.
Online searches for CBDA certificate holders are not yet available. However, you can phone the DAFCP to find out if someone has a CBDA accreditation. Be ready to conduct many applicant interviews. You want someone who is knowledgeable about personal finance in general, traditional investments, and cryptocurrencies. Additionally, the ideal counselor would be dependable and approachable. Find out more about screening potential financial advisors here.
Working with a Crypto Advisor
The function that cryptocurrency plays should ultimately be determined by your financial plan. Unless you have a compelling reason not to, follow your advisor’s advice in this situation. Don’t disregard their counsel if they claim that cryptocurrency is too volatile for you and your objectives.
For the time being, you can always trade tiny quantities of cryptocurrency alone. Over the coming years, it’s probable that both the tools accessible to advisors and the crypto industry as a whole will develop and mature. When cryptocurrency is a more widely used asset class, you can discuss it again with your advisor.
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