How financial planners are making crypto investing easier for clients

The fast rises and falls in bitcoin values have sparked greater interest and questions about the cryptocurrency’s worth, particularly among financial advisers who have customers who are apprehensive about investing in digital currency.

By market capitalization, Bitcoin is the world’s most valuable digital currency, having achieved an all-time high of $41,940. The high volatility of Bitcoin, along with its lack of regulation, has deterred the bulk of institutional investors, including pension and hedge funds, as well as retirement organizations. Blockchain certification will take you a step ahead.

Between 2017 and 2018, hackers, regulatory actions, and extreme volatility destroyed billions of dollars in market capitalization. Bitcoin peaked at over $20,000 in December 2017, before plummeting to approximately $8,500 in March 2018 and hitting lows of around $6,000 in the following months.

Interest in the cryptocurrency, which debuted in January 2009 in the wake of the Great Recession, soared as the US deficit swelled to $3.13 trillion in fiscal 2020 and federal debt reached $27 trillion. Some investors have rekindled their interest in Bitcoin, partially because they believe it will be a better currency than depreciating currencies like the US dollar.

Why Are Financial Advisors attracted to Bitcoin?

According to a Bitwise and ETF Trends survey, 54 percent of financial advisers see Bitcoin’s lack of connection to other asset classes as a reason to include it (or one of its competitors) in their clients’ portfolios.

As Bitcoin has grown in popularity, it has attracted a small number of institutional investors, including a few pension funds, hedge funds, and insurance companies, such as Massachusetts Mutual Life Insurance Co., which purchased $100 million worth of bitcoin through NYDIG, a New York-based fund management firm.

According to Grant Easterbrook, a fintech analyst and co-founder of Dream Forward, a New York-based low-cost 401(k) plan, financial advisors can explain to clients that they should avoid focusing solely on daily price swings and instead determine how much of an allocation works for an investor’s retirement goals.

What Clients Are Being Told About Bitcoin by Advisors

According to Daren Blonski, managing principal of Sonoma Wealth Advisors in California, because Bitcoin and other cryptocurrencies such as Ethereum remain extremely volatile, some investors should limit their investment to 2% to 5% of their portfolio and consider it an alternative asset similar to real estate.

“Some clients find it difficult to deal with portfolio volatility,” he explains. Bitcoin’s risk-adjusted returns seem encouraging, notwithstanding its volatility. Investors must do their homework. During Bitcoin’s bull cycle, investors could expect several times where the price drops by more than 30%.

Because the Securities and Exchange Commission has yet to approve a bitcoin ETF, investors may increase cryptocurrency exposure by investing in GBTC, a trust that holds bitcoin. This method allows users to avoid having to hold the asset outright and instead purchase it via a cryptocurrency exchange like Coinbase or a digital wallet with a complex password.

Shares of GBTC are recommended by financial advisors because they may be put into a Roth IRA or an individual retirement plan. Individuals who sell stocks and obtain profits may pay less tax in a tax-advantaged account than they would in a brokerage account.

Wrapping up

Cryptocurrency financial advisor are making lives easier by breaking down the important points in simpler forms. Cryptocurrency advisory is noble and keeps everyone safe from investing in dodgy places.