Why Now is the Time for Advisors to Educate Themselves on Digital Assets

Bitcoin, Ether, NFTs—unless you’ve been hiding under a rock for the past decade, you’re likely aware of the emergence of the array of digital assets in the investment sphere. And the interest from investors continues to grow exponentially. According to the U.S. Consumer Crypto Survey, 48% of Americans invested money in cryptocurrencies during the first half of 2021. In May 2021, Gemini—a cryptocurrency exchange—reported that an estimated 50 million Americans are likely to purchase crypto in the next year. Here are just a few other examples of the continuing widespread adoption of digital assets:

• Major non-profit organizations and charities like UNICEF and the American Red Cross have set up mechanisms to accept cryptocurrency donations.
• Ukraine recently received almost $100 million in crypto donations to help support its people through the Russian invasion.
• Goldman Sachs, one of the world’s largest financial institutions, is reportedly working on becoming a custodian for cryptocurrency assets.
• Coinbase, a major cryptocurrency exchange, reportedly has more account holders than Schwab.
• Half of the nation’s top universities are now offering courses on digital assets.
• The IRS recently made a major change to the 1040 tax form to include a question about holding digital assets.

It is becoming increasingly clear that digital assets aren’t “just a fad” or analogous to the Beanie Baby or tulip bulb crazes. Digital assets have ascended to become a legitimate, globalized asset class with proven staying power. Yet, there continues to be a vast disconnect between the advisory community’s knowledge of digital assets and the wide array of investment opportunities this new asset class and its technological underpinnings offers for investors.

As prospective and current clients become more curious or deeply interested in these assets, or perhaps come to your firm already owning the assets and looking for advice, it is imperative that advisors have more to say to them than “we don’t know enough” or “we just don’t do that here.” There are a plethora of reasons why you should develop your expertise on this asset class so you can engage in meaningful conversations with prospects and clients. Let's dive into four of them.

Four Reasons to Educate Yourself on Digital Assets as an Advisor

Blockchain technology and digital assets are revolutionary.

I don’t believe the vast majority of advisors truly realize this. While digital assets like Bitcoin and Ether are often the most recognized and widely reported on by the media, it is easy to forget about the public blockchain networks that are the technological underpinnings of these digital coins. A blockchain, which is simply a decentralized digital collection of data linked together, has a variety of other beneficial use cases aside from Bitcoin. It employs technology that enables users to program their money like software using what is called “smart contracts.”

Smart contracts have a variety of beneficial uses, including creating and protecting digital identities, facilitating the swift transfer of goods and payments, automating the mortgage process, and more. Blockchain networks are being used to solve critical issues and drive down costs in the areas of food safety, supply chain, government, and healthcare. PricewaterhouseCoopers economists predict that Blockchain technology could add a projected $1.8 trillion to the global economy by 2030.

Digital assets have nothing in common with what we’ve learned or have practiced from our CFP books.

As financial professionals who are typically highly educated and credentialed, we have to put aside what we’ve traditionally learned from the CFP Board and other finance curricula when it comes to digital assets. Many of those concepts don’t apply in the context of digital assets because it is such a uniquely different asset class. It can be easy to want to compare cryptocurrencies to gold or other commodities when they are not like any of the traditional assets we learned about in our textbooks.

We might find ourselves wanting to compare the demand for digital assets to the beanie babies or tulip bulbs bubble when there are a variety of proven reasons why that is a false equivalence. One of those reasons is that beanie babies never had an actual use case. Digital assets, on the other hand, do. It can also be easy to reduce digital assets like cryptocurrencies as “too risky” because of the price volatility when risk has absolutely nothing to do with volatility. If anything, the price volatility associated with these assets could potentially create tremendous diversification benefits in an investment portfolio. If we’re going to be advisors of the 21^st century, we have to push ourselves to go beyond the CFP Board curriculum we studied 10-30 years ago and really put in the work to learn about the inner workings of this non-traditional asset class.

There are a plethora of ways for clients to invest in digital assets aside from Bitcoin.

While an investor can gain direct exposure to cryptocurrencies using exchanges like Coinbase and Binance, there are a plethora of other ways to invest in digital assets aside from buying Bitcoin. An investor can invest in OTC-traded funds that contain a mix of digital assets, where they wouldn’t directly own Bitcoin, only shares of a trust that owns Bitcoin. They can invest in tokens, which kind of act like shares of stock of a company and creates liquidity for physical assets like real estate, cars, song catalogs, and more. They can make direct investments in the underlying blockchain technology by buying the stocks of publicly-traded blockchain companies, companies utilizing the blockchain in their operations, or companies involved in mining for new coins. Performing the necessary due diligence on these investment opportunities and how they integrate into a client’s financial plan is going to be paramount, and that is where the value of an advisor really comes into play in the digital assets space.

Ultimately, it is our fiduciary responsibility to expand our knowledge of digital assets.

Whether or not advisors believe in the investment thesis for digital assets, becoming knowledgeable about the investment opportunities in this space so you can identify who should and shouldn’t invest, and advise and manage those who are already invested, is all part of performing our fiduciary duty. Fortunately, there are a litany of ways advisors can increase their education around this emerging asset class.

Forbes has an excellent column dedicated to all things digital assets, including regulatory updates. Coursera offers free online courses on the rudiments of blockchain and other digital assets. The Digital Assets Council of Financial Professionals, an organization that offers educational content and events on blockchain and digital assets specifically for the financial services industry, has partnered with XY Planning Network to offer a certificate in Blockchain and Digital assets at a discounted rate for members. I recently had the opportunity to complete this self-study course and can’t emphasize enough just how comprehensive, valuable, and high-quality I found the curriculum to be. The opportunities to expand our knowledge of digital assets are out there. Let’s take advantage of them and use these resources to increase our expertise and maintain our credibility as a profession and with clients.

About the Author

Kathleen Boyd, CFP®, is XYPN's Financial Planning and Process Coach. In her role, she works closely with XYPN members to guide them in refining their planning process, resulting in stronger ties with clients and a more fulfilling planning experience for all involved.