Regulation
Cryptocurrencies for consultants: consultants and cryptocurrencies
An exclusive RIA & FA Day session was held at Consensus 2024 in Austin. Approximately 120 financial advisors spent the day learning about digital assets, interacting with industry thought leaders, and networking with peers.
The energy has been positive and the conversations meaningful, with investor interest in this asset class growing. Even though the event took place behind closed doors, the key themes are worth sharing. Thanks to Adam Blumberg, one of the day’s contributors, for highlighting trends and insights in today’s newsletter.
Consensus 2024 marked a significant milestone for the cryptocurrency industry, driven by positive legislative developments and the approval of an Ethereum ETF. The atmosphere was electric, with the enthusiasm reaching new heights.
FA/RIA Day: a focused learning experience
Thursday was dedicated to Financial Advisors and Registered Investment Advisors (FA/RIAs), attracting approximately 120 professionals eager to explore integrating cryptocurrencies into their practices. The day was full of in-depth discussions, networking opportunities and expert guidance.
Recent ETF approvals and bullish price action have piqued the interest of more advisors and investors, creating fertile ground for knowledge sharing and growth.
Prioritize practical integration over technical jargon
The main objective of the FA/RIA Day was to provide useful information on the integration of cryptocurrencies into financial practices. Instead of delving into the technical complexities of blockchain and price movements, the focus was on the practical application within a financial advisory context.
Education: The Cornerstone of Cryptocurrency Adoption
A recurring theme was the crucial role of education. Advisors must understand available options, strategic allocation, investment thesis, regulatory landscape and compliance requirements.
Equally important is the need to educate investors. Despite growing awareness about bitcoin and cryptocurrencies, a significant knowledge gap persists. Effective training allows advisors to confidently discuss cryptocurrency allocations and have informed conversations with clients.
Explore investment options
The panel discussions covered a range of investment options, including direct ownership, custody via SMA platforms, ETFs, and investments in public companies such as MicroStrategy and bitcoin mining companies.
Each option has its pros and cons.
While direct ownership embodies the ethics of cryptocurrencies, it introduces administrative and compliance challenges that many advisors prefer to avoid.
ETFs provide exposure to the underlying asset price without the complexities of custody and reporting, making it easier for advisors to allocate within any account type, integrating investments into AUM and reporting, and facilitating rebalancing, just as investments by public companies do.
Conversations and portfolio allocations
Understanding cryptography is one thing; putting it in a wallet is another. The advisors shared their experiences in conversations with clients and their strategies for allocating cryptocurrencies.
These discussions often involve setting realistic expectations, aligning with clients’ investment objectives, and conducting in-depth risk assessments to assess tolerance for volatility.
We’ve heard that advisors typically allocate 2-5% of a portfolio to cryptocurrencies, classifying them as alternative investments. ETFs allowed advisors to discuss the benefits of rebalancing and its positive impact on portfolio performance.
Advisors must also determine the most suitable accounts for cryptocurrency holdings, whether taxable or non-taxable, such as IRAs.
Navigation in compliance and regulation
The intersection of cryptocurrencies with politics in the United States adds another layer of complexity. Positive legislative momentum was evident shortly before the Consensus, with several Democrats supporting pro-crypto regulation.
One of the highlights of the conference was the keynote address from CFTC Commissioner Summer Mersinger, who outlined the CFTC’s perspective on cryptocurrency regulation and its implications for financial advisors. The need for regulatory clarity remains critical as advisors navigate this evolving landscape.
Consensus 2024 highlighted the growing integration of cryptocurrencies into financial advisory practices. By focusing on education, practical application and regulatory insights, advisors are better equipped to meet the growing demand for cryptocurrency investments and guide their clients through this dynamic asset class.
Note: The opinions expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.