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How do I safely manage assets in Crypto as a Financial Advisor?


The importance of Crypto Trading for Financial Advisors

In the last decade, cryptocurrencies have gone from being viewed as a fringe monetary tool used mostly by criminals to a new, trendy asset class that money managers are all talking about. One problem is that cryptocurrencies are not yet widely available for most wealth managers and in turn their clients. Only certain brokers with the right networks have the infrastructure to sell them. Another problem is that there are many different types of cryptocurrencies that each work a little differently. The one thing they all have in common is that they are based on a technology called a blockchain. And with the rise of platforms that offer crypto trading for financial advisors, they are about to become more accessible.


It’s all about the blockchain

A blockchain is a network over which there are bits of scattered information about financial transactions; everything from lottery ticket purchases, mortgages, and initial public offerings, to name a few. When these ledgers of transactions are packaged together in a way that is consistent with a cryptographic hash, a new “block” on the chain is created. The process of creating a block is called mining and the nodes, or basically computers, that power this work are known as “miners”. When a miner creates a new block, they are rewarded with a coin of the respective cryptocurrency. One of the key differences between Bitcoin and other rival cryptocurrencies, like Ethereum and Litecoin, is the rate and manner in which these blocks are created.

Eventually, people started accepting these crypto-coins in exchange for US dollars. This transacting has led to the creation of multiple blockchain based currencies that each have their own unique schedules for how often they alter the parameters that the miners use to obtain coins. Essentially all of these protocols are just mediums where the amount of computational work that is put into authenticating blocks of code grows more and more sophisticated and the miner who ends up with the largest amount gets rewarded with the coin. As these coins have started to be traded for dollars, interest in them has grown in investment and security circles. Crypto trading for financial advisors shows much promise as a means for ordinary investors to get in on the action.


Simplifying the access

Recently there have been some financial technology (or fintech) firms that have created a platform where virtually any wealth manager, whether they manage modest portfolios of ordinary people or the equities of wealthy elites, can purchase any of the major cryptocurrencies. This new crypto trading for financial advisors will have interesting implications. It could be that the relative difficulty in obtaining these coins has acted as a barrier to entry into the market. If this is the case, we could see the value of cryptocurrencies go up substantially. However, it could also be that there is not any excess demand for these assets, and any barriers to entry that might exist are having negligible impacts on market outcomes. Regardless of what happens next, one can be certain that the invisible hand of the market will work its magic.

Please note, this article is intended for informational purposes only and should not be considered investment, tax or legal advice. Consult your investment, tax and legal teams for definitive guidance on any digital asset.