Cryptocurrency education your financial advisor won’t give you

With Bitcoin and other cryptocurrencies regularly in the news, it can be tempting to feel like you’re missing out if you don’t invest. But it’s important to remember that crypto mining – like gold mining – takes a lot of energy without any guarantee of return. So while there may be finite availability of some coins, investing is still a risky proposition.

Peer-to-peer data and value transferral is facilitated by more than 12,000 cryptocurrencies as of March 2022.

According to a study done in 2022, 49% of adults surveyed said they were “beginners” when it came to understanding crypto. This leaves those who believe in the future of crypto-assets but don’t know how to invest in them feeling lost. A modern advisor familiar with the ins and outs of crypto can help clear up this confusing landscape.

 

Is investing in the stock market gambling?

Since the Dojima Rice Exchange opened in Japan in 1710, people have questioned whether futures trading is a smart investment. With many things to take into account and lots of helpful articles on the internet about cryptocurrencies, it can be difficult to know whether buying cryptocurrency is worth your time or money.

If you’re hoping to get crypto buy, hold, or sell recommendations from your financial advisor, you’ll likely be disappointed. While some investment advisors see potential in alternative assets that don’t move in conjunction with the S&P 500 Index, it’s still uncommon to find ones who are willing to suggest allocating a significant portion of your portfolio into cryptocurrencies. Below are the two primary reasons most wealth managers avoid them.

Many people avoid cryptocurrency because they view it as a fad, and there is currently little regulation surrounding it. Some fear that cryptocurrencies are being sold to unsuspecting customers without any clear guidance from regulatory bodies.

Please don’t think that just because there are many cryptocurrencies and they seem fun to obtain, that individual investors should jump in right away. It’s essential to understand how a new financial product works before investing any money into it; cryptocurrencies may be thrilling but gambling with your cryptocurrency investments is very risky.

Although an advisor may be highly knowledgeable about cryptocurrency, the advisor cannot provide any recommendations on whether to buy or sell digital currency. The advisor is not alone in this belief. Most advisors think this way because their job is to manage money and expectations, rather than selling transactions.

Some advisors choose to protect their clients from the noise of the market and steer them away from cryptocurrency scams. In 2021, crypto scammers stole an estimated $14 billion.

 

A Boston-based financial advisor points out that when their clients inquire about investing in cryptocurrency, it’s commonly because the client has heard of others making a lot of money doing so. The issue with this thought process, the advisor continues to explain, is that cryptocurrencies are incredibly unstable and investing in them at this moment would be tantamount to gambling.

Cryptocurrencies are more than just digital money; they’re based on blockchain technology, which is a distributed ledger. Bitcoin is the most well-known cryptocurrency because it was the first one to be published and has the highest market value.

While blockchain was first intended for payment processing, it can be used for much more. Examples include digital identity, tokenization of data, data management, and creating secure audit trails.

If we lived in an ideal world, you would be able to ask your financial advisor about investing in cryptocurrencies and which ones they recommend, as well as how many you should buy. However, most advisors do not consider them investable assets and cannot have an informed conversation about them.

If you’re looking for advice about investing in Bitcoin, Ethereum, or any other cryptocurrency, the less-than-5% rule is a good place to start. This guideline suggests that you shouldn’t put more than 5% of your portfolio into any high-risk category. However, at this point, you may have to get creative if you’re working with most financial advisors.

One does not need to purchase cryptocurrency in order to participate in the market. There are a number of ways to get involved, and some advisors prefer indirect approaches.

Some of the following alternatives might be undertaken by your financial advisor:

 

  •    Bitcoin-related stocks and companies with exposure to blockchain
  •    Bitcoin futures
  •    Cryptocurrency-focused hedge funds
  •    Crypto mining ETFs

 

It’s important to remember that, just like betting on a horse race, you should only invest as much money into cryptocurrencies as you can afford to lose. Even though crypto-assets come with a high level of risk, this doesn’t mean they’re necessarily gambling – some “real” assets are just as risky.

If cryptocurrencies do gain popularity among more mainstream investors, advisors who have yet to dip their toes in the water will need to play catch up.

Before you can investment in blockchain technology, you need to purchase a digital wallet to store your cryptocurrency. These wallets are necessary for security purposes.

Look for a cryptocurrency exchange that supports the trading of the currency you want to buy. A fantastic example is Coinbase, which is based in San Francisco and relatively well-known. This digital currency exchange permits you not only to buy but also sell products like Bitcoin, Ethereum, and other cryptocurrencies using your local fiat currency.

The opinion in this article may change as time goes on and we learn more about the crypto world. Coins are being created frequently, and blockchain- once a niche concept- is now getting attention from investors and government officials. More taxes will be put into place as people begin to understand how to tax cryptocurrency correctly. Advisors should really take the time to understand this asset class, but many are unwilling to do so or even recommend it themselves. However, there are some advisors out there that knowcrypto well enought o help you invest properly.