Does Your Financial Advisor Speak Crypto?

It’s pretty much impossible to avoid frequent headlines declaring that Bitcoin or some other new cryptocurrency is the gold standard of the new world of digital assets. Nobody wants to miss out on a gold rush, but Bitcoin isn't gold, and neither are its rival protocols such as Ethereum. However, just as with gold mining, crypto mining involves expending energy to acquire something that, depending on the coin's inflation schedule, may have finite availability.

In early 2023, there were more than 9,000 active cryptocurrencies. What may be surprising is that in a 2022 study done by Investopedia regarding financial literacy, 49% of adults, when asked how well they understood crypto, said they were "beginners." Where does this leave the individual who believes in the future of these crypto-assets but can't figure out how to invest in them? A modern advisor who is well-versed in crypto can help you make sense of this rather new landscape.

Key Takeaways

  • Most advisors are not well versed in crypto and are hesitant to recommend it to clients.
  • There is no industry standard for certification like there is with the CFP designation.
  • Despite crypto having a market cap in the trillions, many are wary of calling it an "investable asset," and consider it more gambling than an investment vehicle.
  • Almost half of American adults do not understand digital assets beyond a beginner level.
  • Past performance is no guarantee of future results. This common saying should be on the mind of every crypto investor and advisor.

Is This Investing or Gambling?

That's the question people have been asking about futures trading since the Dojima Rice Exchange officially opened in Japan in 1730. There are many factors to consider and plenty of good articles to educate yourself about the technology behind cryptocurrencies. But who can advise you on whether to buy in? 

Don’t expect any crypto buy, hold, or sell recommendations from your financial advisor. Even among investment advisors who like alternative assets that tend to move independently of the S&P 500 Index, you'll be hard-pressed to find many willing to suggest putting a chunk of your portfolio into any of the cryptocurrencies. Most wealth managers are steering clear for two reasons, listed below.

Your Advisor Is Skeptical

First, because they mostly see this rush as just another new fad in the financial space that has to play itself out before there can be any real guidance.  Second, it is a space that has no clear regulators yet but does have some who hate all cryptocurrencies when sold to retail customers.

With so many cryptocurrencies and the game-like nature of obtaining them, plenty of individual investors want to jump in. But make no mistake: cryptocurrencies may be thrilling but putting your money in a new financial product without any real understanding of how it works really is gambling.

Your Advisor Is Trying to Protect You

Although an advisor may be deeply knowledgeable about crypto, the advisor can’tand won’tprovide any recommendations on whether to buy or sell any digital currency. The advisor is not alone in this way of thinking. The reason is that an advisor's job is not to sell transactions, but rather to manage their clients' money and their expectations.

Wanting to protect advisory clients, sometimes from themselves, the advisor screens out the noise in the market and steers them away from the many cryptocurrency scams that have cropped up. Just to put that in perspective, crypto scammers stole some $14 billion in 2021.

Advisors Are Hesitant to Recommend Crypto

One Boston-based financial advisor notes that when clients ask how they can invest in crypto, for example, it's often because they've heard how much money they could make. The problem with this way of thinking, the advisor explains, is that cryptocurrencies are so risky that investing in them right now is essentially gambling

A better way to think about cryptocurrencies is to focus on the technology behind them: the blockchain. The blockchain is more or less a distributed ledger. Bitcoin is the most well-known cryptocurrency because it was the first viable one and has the highest market cap.

Blockchain technology was originally developed with payment processing in mind, but in reality, there are a lot of truly solid potential uses for it. Some of the possibilities include digital identity, tokenization of data, data management, and secure audit trails.

Be sure to keep track of your cryptocurrency passwords. If you lose them or don't leave them to your heirs, no one can get at those millions you've mined.

Certified Financial Planners Board Cautious About Crypto Assets

As of Dec. 2022, advisors are free to talk to their clients about cryptocurrencies. However, the influential CFP Board of Standards did urge any Certified Financial Planners (CFP) considering offering advice on cryptocurrency-related assets to do so “with caution.”

In a Nov. 30, 2022 notice, which will have been closely read by CFPs and the wider financial advisor community, the entity responsible for overseeing professional standards stated that cryptocurrencies should be treated with greater scrutiny than more conventional financial assets as they “have particular attributes and present significant risks and uncertainties that warrant careful analysis.” Among other things, the CFP Board noted that cryptocurrency-related assets are generally:

  • Difficult to analyze
  • Hard to value
  • At risk of getting stolen and more susceptible to heavy losses
  • Speculative and volatile

The CFP Board mentioned that this update had been planned for a while and interestingly, alongside laying out the risks, chose to remind CFP professionals that they are not required or obligated in any way to provide financial advice about cryptocurrency-related assets. It’s likely that the CFP Board is aware that an increasing number of CFP professionals are asked by their clients about these types of investments and wanted to remind them to be extra careful before giving in to these requests.

In the end, this notice didn’t result in any rule changes for CFPs. However, it did offer some clarity on the risks of crypto assets and is likely to make financial advisors even more cautious about advising clients on these types of investments in the future.

What Your Financial Advisor Can Do

In an ideal world, you'd turn to your financial advisor, ask about adding some cryptocurrencies to your portfolio and discuss which ones and how much. In the real world, the vast majority of advisors don't even recognize them as an investable asset class. Therefore, many are not able to talk about them intelligently.

So where can you go for real advice about investing in Bitcoin, Ethereum, or any other cryptocurrency you're considering? You can always fall back on the less-than-5% rule, a simple guideline that dictates not putting more than 5% of your portfolio into any high-risk category. Even then, at this point, you'll have to get a little creative in your quest for crypto investments if you're working with most financial advisors. 

Different Ways to Get in This Market

There is more than one way to participate in cryptocurrencies, however, and not all of them involve actually buying the digital assets directly. Some knowledgeable advisors would rather take one of these indirect approaches instead of actually helping you own cryptocurrency. 

Your financial advisor might go for one or more of the following alternatives: 

Remember, like betting on a horse race, the amount of money you’re willing to risk on cryptocurrencies should be limited to the amount you can afford to lose. Of course, the high level of risk associated with crypto-assets doesn't automatically mean that they're gambling and not an investment. There are plenty of so-called "real" assets that come with loads of risk, as well. 

Still, if cryptocurrencies do take their place among conventional investments, then advisors will have to catch up with those who waded into the fray long before them.

Because of the mathematical limitations built into cryptocurrencies, it is very difficult for any person or government to inflate them.

How to Buy Crypto

If you've spent time studying blockchain technology and you want to invest in it for what it isand not as just another investable assetyou may have to do the heavy lifting and buy the cryptocurrency yourself. To do so, you need a digital wallet, such as a Bitcoin wallet, in which to store your cryptocurrencies securely. 

To convert any cryptocurrency into cash, look for an exchange that supports trading the currency you want to purchase, such as San Francisco-based Coinbase, one of the more well-known exchanges. This digital currency exchange allows you to buy and sell Bitcoin, Ethereum, and other crypto products in your local currency, called fiat currency.

President Biden issued an executive order in March 2022 requiring their regulation. Both the Commodity Futures Trading Commission and the Securities and Exchange Commission are looking at drafting rules. The President has suggested a new regulator be created.

Does Your Advisor Understand Crypto Exchanges? 

Not all digital exchanges support all cryptocurrencies and/or all fiat currencies (the technical term for dollars, euros, yen, and other currencies). Start with well-known names such as Coinbase, Kraken, or Gemini, and do your homework before investing any of your cash. However, even the best crypto exchanges are not entirely without a blemish. Examine each exchange's history of freezing and closing of accounts, outages, and its close ties with some traditional banking establishments.

To buy or sell cryptocurrencies, all you need to do is log into your account on the exchange you have selected, either in its mobile app or on its website. For maximum security, you may want to set up your own cryptocurrency wallet to hold the currency, rather than use one provided through the site. Before starting, you'll want to learn the safest ways to store your bitcoin and other cryptocurrencies.

What Is a Crypto Advisor?

A crypto advisor is an asset manager who understands the workings of cryptocurrency and the appropriate ways for investing in it. Professionals who stay abreast of the rapid developments in cryptocurrency and blockchain, crypto advisors may be registered as investment advisors, registered representatives, or hold a credential like the Certified Financial Planner or Chartered Financial Analyst.

How Do You Become a Professional Cryptocurrency Advisor?

There is currently no "official" way to be licensed as a Professional Cryptocurrency Advisor. However, most U.S. states are requiring that businesses retailing cryptocurrencies get licensed as a Money Transmitter Business. Crypto retailers fit this definition, though not tremendously comfortably, requiring the licensing gives the states and the Financial Crimes Enforcement Network (FinCEN) authority to take action against fraud and money laundering. Individuals are not required to get licensed to work at an MTB.

Why Might a Financial Advisor Recommend Cryptocurrency?

Cryptocurrencies are a good investment for those who believe in the future of digital currencies and for those who wish to protect themselves in the online financial arena. Cryptocurrencies are also relatively immune to political manipulation or inflation. Most have a cap enforced by mathematical algorithms, preventing dilution of value. Finally, of course, if you have spare assets with which you want to speculate, crypto is a great place to do it.

How Can You Find an Advisor Who Understands Crypto?

Some advisors will list crypto on their website, but there is always the chance they listed it strictly for marketing purposes. Feel free to ask them some probing questions about blockchain or Bitcoin and see if they are able to engage in intelligent discussion. Some advisors wishing to be well-versed in crypto might pursue the Certified Digital Asset Advisor designation.

The Bottom Line

The rhetoric in this article will likely be adjusted on an ongoing basis as the crypto landscape is still unfolding. New coins are added every day, and the once niche concept of blockchain is gaining real-world traction and government attention. New taxes are likely to come into play as the regulatory bodies gain more understanding of how to tax crypto. It is becoming ever more important for advisors to understand the asset class, yet many are hesitant to do so, and even more hesitant to recommend it. This makes finding an advisor well-versed in crypto difficult, but not impossible.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Statista. "Number of Cryptocurrencies Worldwide From 2013 to November 2022."

  2. CoinMarketCap. "Today's Cryptocurrency Prices by Market Cap."

  3. Harvard Business School. "The Dojima Rice Market and the Origins of Futures Trading."

  4. CNBC. "Crypto Scammers Took a Record $14 Billion In 2021."

  5. The New York Times. "Lost Passwords Lock Millionaires Out of Their Bitcoin Fortunes."

  6. CFP Board. "Notice to CFP® Professionals Regarding Financial Advice About Cryptocurrency-Related Assets," PDF Page 2.

  7. CFP Board. "Notice to CFP® Professionals Regarding Financial Advice About Cryptocurrency-Related Assets," PDF Page 5.

  8. CFP Board. "Notice to CFP® Professionals Regarding Financial Advice About Cryptocurrency-Related Assets."

  9. The White House. "President Biden to Sign Executive Order on Ensuring Responsible Development of Digital Assets."

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