Investing in Crypto-Platform in 2022: Insights from the Founder of Digital Assets Council

The Rise of Cryptocurrency: Why Financial Advisors Need to Catch Up

According to a recent study by Pew Research, approximately 20 percent of Americans have invested in, traded, or used cryptocurrency. However, Rick Edelman, the founder of the Digital Assets Council of Financial Professionals, believes that this number will significantly increase, with a third of all adults in the U.S. owning crypto by the end of the year. In light of this trend, Edelman argues that it’s time for financial advisors to catch up and start including cryptocurrency in their clients’ portfolios.

The Importance of Including Crypto in Investment Portfolios

Edelman emphasizes that cryptocurrency is a new asset class, the first since the discovery of oil 150 years ago. As such, it offers diversification, improved returns, and lower risk. Including crypto in investment portfolios can assist in achieving financial goals and provide exposure to a rapidly growing market. Edelman suggests that financial advisors allocate at least one to two percent of their clients’ portfolios to crypto, as this is sufficient to benefit from potential gains without exposing clients to excessive risk.

The Changing Landscape for Financial Advisors

While some financial advisors may be waiting for the approval of a bitcoin ETF before recommending crypto to their clients, Edelman argues that this approach is unnecessary. He points out that there are now numerous ways to invest in cryptocurrency, including Bitcoin futures ETFs, publicly traded stocks of crypto-related companies, and even proxy stocks that track the price of Bitcoin. Additionally, there are a wide variety of ETFs that invest in the technology behind crypto, providing exposure to the industry without directly buying digital assets.

Addressing Regulatory Concerns

One of the main concerns surrounding cryptocurrency is the regulatory landscape. However, Edelman believes that the regulatory environment is shifting in favor of embracing crypto rather than banning it. He highlights that regulators and lawmakers are focused on establishing guardrails to protect consumers from scams and ensure the safe operation of the crypto market. While there is still some uncertainty, Edelman argues that a small allocation to crypto is a reasonable approach that aligns with regulatory developments.

The Fiduciary Obligation of Financial Advisors

Financial advisors have a fiduciary obligation to act in their clients’ best interests. Edelman asserts that failing to recommend cryptocurrency to clients without a legitimate reason is a violation of this obligation. He notes that the attitude towards crypto has shifted, with regulators and compliance attorneys encouraging advisors to consider crypto as a viable investment option. Edelman suggests that advisors educate themselves about blockchain and digital assets to make informed decisions and fulfill their fiduciary duty.

Frequently Asked Questions

1. How much should financial advisors allocate to cryptocurrency in client portfolios?

According to Rick Edelman, financial advisors should allocate one to two percent of client portfolios to cryptocurrency. This allocation provides exposure to the asset class without exposing clients to excessive risk.

2. Should financial advisors wait for the approval of a Bitcoin ETF before recommending crypto?

No, financial advisors do not need to wait for the approval of a Bitcoin ETF. There are already various ways to invest in cryptocurrency, including Bitcoin futures ETFs, publicly traded stocks of crypto-related companies, and ETFs that invest in the technology behind crypto.

3. What are the regulatory concerns surrounding cryptocurrency?

While there is some regulatory uncertainty, the overall trend is towards embracing cryptocurrency rather than banning it. Regulators and lawmakers are focused on establishing safeguards to protect consumers and ensure the safe operation of the crypto market.

4. How can financial advisors fulfill their fiduciary obligation when it comes to cryptocurrency?

Financial advisors can fulfill their fiduciary obligation by educating themselves about blockchain and digital assets. By gaining knowledge and understanding, advisors can make informed decisions and provide appropriate recommendations to their clients regarding cryptocurrency.

5. Why is it important for financial advisors to recommend cryptocurrency to their clients?

As cryptocurrency becomes more mainstream, clients may be investing in crypto without the guidance of their financial advisors. This can lead to potential risks and scams. By recommending cryptocurrency and providing advice and support, financial advisors can fulfill their fiduciary obligation and protect their clients’ interests.